it can be easy it depends on the investing strategy and therefore risk management.
The most well spread strategies are the conservative and risky approach. Both strategies will be discussed in the following.
What is conservative investing?
Conservative investing is an investment strategy that prioritizes preserving capital over earning high returns. This approach typically invests in lower-risk securities such as fixed-income and money market investments, along with larger stocks considered more stable or “blue chip”. A conservative portfolio will generally hold half or more of its assets in debt obligations rather than equities.
Some popular conservative investment strategies are focused on preserving capital levels and avoiding any portfolio losses. One strategy that falls under this category is the preservation of capital, which involves maintaining current levels of capital and preventing any losses. This could be a suitable investment strategy for an older investor who wants to maximize her existing financial assets without taking significant risks.
Who follows this strategy?
For investors who are comfortable with a lower risk tolerance and who want to continue earning regular income post-retirement, a current income strategy can be appropriate. These strategies focus on finding investments that pay above-average distributions – such as dividends and interest – which provide stability over time. Income strategies could be used by an investor looking for established companies that usually meet their dividend payment deadlines without any risks of default or missed payments.
Young and old adopt this strategy, while the young want to build reserves for retirement the old want to keep their wealth. Also already rich people of any age invest to keep their wealth which otherwise would be deprecated due to inflation.
Conservative investing
Where to invest?
Index funds
Index funds: As the name suggests, this is a type of fund that invests in the index (Nifty50, Sensex, sectoral indices, etc). Its performance tends to mirror that of the index it is replicating. Index funds are passively managed funds that allow investors to participate intelligently in the stock market. An index fund is the safest option for a retail investor who has little or no knowledge about the stock market. I’ll also recommend you get a Financial analyst/stockbroker.
Debt mutual funds
Debt mutual funds are a low-risk investment option that is ideal for investors who expect a steady income. These funds invest in debt instruments such as debentures, gilt funds, government securities, and other similar investments. While fund holdings may appreciate over time, the primary objective of these Funds is to provide regular cash flow to their investors. This makes them an excellent choice for those looking for stability and predictability when investing.
Public Provident Fund
If you are looking for a long-term investment that offers tax benefits and security, then PPF might be the right option for you. Although it has a lock-in period of 15 years, PPF is eligible for exemption from taxation under the Exempt-Exempt-Exempt classification.
National pension scheme
NPS with its unique Tax benefits, good returns, and low-cost structure, is another good investment vehicle for a secured future. NPS makes a decent avenue for saving for retirement. A person who joins NPS at the age of 18 can remain invested in the system till the age of 70.
Risky investing
IPOs
IPO acronym stands for “Initial Public Offering”; the first-time public offering of a company’s securities in the form of an initial public offering. In an IPO, a company places shares on a stock exchange worldwide for the first time.
Throughout five years, a high percentage of companies end up being worth less than the price of their initial public offering.
Are IPOs good investments?
Before investing in a company, it’s important to be very discerning and read the S-1 filings and get up to speed on any company.
Investment Bankers and Company Management are paid to promote the stock of the companies they represent. They present an optimistic view of the potential market, and most IPOs are sold on scarcity (companies offer small slivers of shares), and emotion, specifically the fear of Missing Out on the next Google or Facebook.
Investors who do not understand the potential risks and rewards of a particular company may want to avoid it when it IPOs, and study the stock for a few months before buying. Most -but not all – stocks fall below their IPO price at one time or another during the first year. It’s a high risk since there is not a lot of information about the company from which one could deduce the future of the company.
Penny Stocks
Penny stocks can offer huge profits if you search for the right firm. Most penny stocks will as an alternative comes with considerable volatility, unpredictability, and big losses if you’re not cautious. Stocks that trade on OTC magenta market typically have minuscule working capital and often offer scant details to investors about their financial condition.
High-Yield Bonds
Companies that have been either initially rated or downgraded to a lower investment grade need to pay higher rates of interest than their more steady cousins to draw investors but sometimes, the relative instability of high-yield bonds, aka garbage bonds, additionally intends there exists a better serendipity a firm may default on its obligations.
This can translate into a temporary cessation of revenue in less severe cases and a partial or complete loss of considerable in the event of insolvency. In reality, most of these companies go bankrupt and investors that bought the bonds lose all of their money.
Leveraged ETFs
Leveraged Exchange Traded Funds are one of the most volatile instruments on the market today. These funds are usually linked to an underlying index or other benchmark and move tangentially or inversely in certain relationships.
Popular ETFs
There are inverse ETFs that track the S&P 500, for instance, which will move in the opposite direction of the index. Compared to their benchmarks, some ETFs are designed to trade in multiples of two or three.
Investing in commodity stocks
If you don’t want to own physical commodities, you can still benefit from rising commodity prices by investing in producers.
A commodity is a raw fabric or a core excellent that is utilized in commerce. For instance, oil is part of the best-known commodities because it has also many utilizes, from transportation to heating to electricity.
In current years, commodities as an asset lesson have drawn lots of attention from the investor community. Several investors are searching for commodities because they see the worth in investing in an asset lesson that’s spreading in scale and significance. Especially investments in gold, Lithium, or copper are interesting for the future as the demand is likely to increase. In this sector, a rising demand correlates to a higher price.
This sector is highly speculative since it’s often not clear how much resources a company can extract and how long it takes to produce. In most cases, it takes years from exploration to production. The company also needs to overcome a lot of legal regulations and keep a good relationship with locals to avoid problems. To build good relations it’s often necessary to form social projects or share profits with the government.
In addition, operation costs are high and all necessary equipment needs to be sent to the operation place. This costs millions that the company must invest in advance and if local resources are profitable it’s easy for the stock to drop.
How to Invest
If you don’t want to own physical commodities, you can still benefit from rising commodity prices by investing in producers.
With producers, shareholders can benefit in two ways. First, the underlying business typically sees an increase in profit when the commodity’s price rises. Second, the business can make more money by increasing production over time. Therefore, you can profit from commodities in two ways.
Risks: Investments in commodity producers frequently involve risk. Companies in the commodities industry need a lot of capital, and there are boom-and-bust cycles. Investing in a few stocks is riskier than investing in a diversified group of stocks, and buying individual stocks necessitates extensive research and work. Therefore, if you choose this route, you will need to thoroughly comprehend the company and industry.
On my website, I write articles about commodity investments that are risky but can lead to massive returns. Check out some articles here.
Options
A trader can hold a leveraged position in an asset with an option for less money than buying shares of the asset. Typically, traders purchase a call or put it to make a profit from a short-term movement. Even though skilled traders gain an advantage by learning technical analysis, prices in the options market can appear to fluctuate in an unpredictably large range to novice traders. Options trading should be left to skilled traders because investors run the risk of losing all of their money quickly.
How to make money
Call placement and put placement are options. A call option is a wager that a stock’s price will rise. A put option is a wager that a stock’s price will fall. These contracts are used by people to hedge their risks or speculate on the movement of a particular stock in various combinations.
How to start
Before diving into options, it is best to have a fairly solid understanding of trading under your belt. Then, you should talk about your goals for investing, like preserving capital, making money, growing, or speculating. You may be required to disclose your net worth or the types of options contracts you intend to trade if your broker has additional requirements.
Before beginning options trading, as with any other type of investing, it is best to learn everything you can about it and use online simulators to get a feel for how it works.
Start small when you are ready to trade options; you can always try more aggressive options strategies later. Focusing on a well-known asset and wagering a sum you are comfortable losing is best at first.
Venture Capital
Startups seeking venture capital investment face a precarious and uncertain future. While many new businesses fail, a small number of gems can supply the public with highly sought-after goods and services. Even if a startup’s product is appealing, poor management, ineffective marketing, and even a poor location can hinder its success.
The lack of transparency regarding management’s perceived capacity to carry out the necessary functions to support the business is one aspect of the risk associated with venture capital. People with great ideas but no business acumen are the driving force behind many startups. To confidently assess a brand-new company’s viability, venture capital investors must conduct additional research. Some investors may find it challenging because venture capital investments typically have very high minimums. Make sure to conduct your research before investing in a venture capital fund or investment.
How to invest venture capital in start-ups
Although opportunities occasionally arise for insiders, there is no clear path to investing in a venture capital firm, the business that manages the funds. Most of the time, a private equity expert will get the chance to help start a new business. A key early “anchor” investor in a new company’s first fund may, alternatively, be able to negotiate for some ownership in the company itself. Instead of following the more conventional private equity route, some tech-enabled venture capitalists (VCs), VC-adjacent investment businesses, and tech companies with a VC sidecar have launched as startups in recent years.
In these instances, investors can invest in VC-enabled VCs in the same manner as they would in any tech startup and acquire an interest in a company that manages VC funds. However, unlike investing in funds managed by venture capital firms, there is still no established market for venture capital investments.
Currency trading
Currency trading and investing may be best left to the professionals, as quick-paced changes in exchange rates offer a high-risk environment to sentimental traders and investors.
Those investors who can handle the added pressures of currency trading should seek out the patterns of specific currencies before investing to curtail added risks. Currency markets are linked to one another, and it is a common practice to short one currency while going long on another to protect investments from additional losses.12
Currency, or forex trading, as it is called, is not for beginners. The forex market allows for high leverage. Brokers offering 50:1 leverage is standard, which can be additionally risky for investors if not used appropriately.
How it works
The 24-hour trading sessions are misleading because currency trading is a 24-hour market that is only closed from Friday evening to Sunday evening. The European, Asian, and United States trading sessions are the three sessions.
Even though some sessions overlap, the main currencies in each market are traded most frequently during those hours. As a result, certain currency pairs will experience higher volumes in particular sessions. The U.S. trading session will see the most volume for traders who stick with dollar pairs.
Pips and pairs
Pips and pairs are used for all currency trading. In contrast to the stock market, where you can buy or sell a single stock, the forex market requires you to buy one currency and sell another currency. Next, prices are set to the fourth decimal place for nearly all currencies. The smallest trade increment is called a pip or percentage point. Typically, one pip is equal to 1/100 of 1%.
Currency is traded in varying sizes. The micro-lot is one thousand dollars. A micro lot is equivalent to $1,000 of your base currency, the dollar if your account is funded in U.S. dollars. A standard lot is 100,000 units, while a mini lot is 10,000 units of your base currency.
The smallest trade increment is referred to as a pip (percentage in point). One pip typically corresponds to the fourth decimal place or 1/100 of 1%. The fourth or fifth decimal point is used to price out the majority of currencies. Currency pairs with the Japanese Yen (JPY) as the quote currency are an exception to this rule. A pip is the second decimal place at which these pairs typically price out to two or three decimal places.
Because one pip in a micro lot only represents a 10-cent price change, retail or novice traders frequently trade currency in micro lots. This makes it easier to control losses when a trade doesn’t work out as planned. One pip is equivalent to $1 in a mini lot and $10 in a standard lot. Trading in micro or mini lots makes the potential losses for small investors much.
Check out more stock market basics:
Can stock trading make you rich?
Are stock investments worth it?
How is monetary policy used to control economy?