HELP & ADVICE
Most people who begin investing invest in the stock market, while hearing the term stock market tends to bring on the image of people in colourful jackets yelling “buy”, “sell” and using strange hand signals.
They may see a movie like Wall Street, Boiler Room or Rogue Trader and say “this looks fun and easy" throw some money into a day trading account, learn a bit of technical analysis and think they will be able to make great financial decisions just by reading the Financial Times and watching Bloomberg.
The reality these days with put trading is long gone, screen based day trading is much less glamorous and more akin to watching paint dry. The odds of losing money from day trading are extremely high.
Stock trading is a highly complex performance discipline akin to becoming an Olympic-level sportsman.
Only a few have the talent to constantly make profits.
Day trading is about buying and selling stocks for short-term profit, investing on the other hand, is about buying stocks for long-term gains. Investing requires a lot of research and patience and quite simply requires you to buy hold and sit on your hands for long periods.
It is a gamble, as you may have to incur a loss before the investment rises, but the returns can be significantly more than leaving your money to sit in a bank account and earn little interest.
If day trading or investing is not for you, but you require a higher rate of return than a bank account then you should seek the services of a financial advisor.
Whatever your goal is a diverse portfolio made up of various investment classes tends to be generally recommended as it's rarely a good idea to put all your eggs in one basket.
A financial advisor will help you set up your portfolio by first carrying out a fact find. This is principally to determine your attitude to risk.
Risk is fundamental to investing in general the higher growth investments carry higher risks while low risk investments offer low growth.
A financial advisor will set up your portfolio according to your current risk profile.
Remember that your risk profile changes over time and that’s why management is key your advisor will be able to monitor your investments and rebalance your portfolio as needed.
This is more about how resilient your finances are rather than how cautious you are.
Here are some related articles on investing, pensions and financial advice.
Here's a brief glossary of common investment terms:
Asset Allocation: The distribution of investment funds among different asset classes (e.g., stocks, bonds, and cash) to achieve a desired risk and return profile.
Alternative investments: These are non-traditional asset classes that go beyond traditional investments like stocks, bonds, and cash. These include private equity, hedge funds, property, commodities and cryptocurrencies.
Bull market: A market characterised by rising prices, optimism, and investor confidence.
Bear market: A market characterised by falling prices, pessimism, and a lack of investor confidence.
Bonds: These are essentially loans, either to the government or corporations which are paid back over time with interest they range from low risk (UK government bonds are called Gilts) to high risk (bonds issued by a company) on average they are lower risk than equities as they tend to provide steadier returns and fluctuate less in value.
Capital Gains: The profit realised from the sale of an investment, such as stocks or property.
Commodities: Commodities funds invest in raw materials or agricultural products anything from wheat to gold. Investing in commodities is relatively high risk and they tend not to deliver as much growth as securities, the advantage of commodities is their performance is completely independent from that of securities so they can help balance portfolios.
Equities: Also known as stocks & shares they represent a stake in a company. They can be bought and sold on the stock exchange; their value fluctuates losing as well as gaining value this makes them best suited to longer term investments as they are high risk in the short-term.
ETF (Exchange Traded Fund): A type of investment fund and exchange-traded product, with shares that are tradeable on a stock exchange.
Diversification: Spreading investments across different assets or types of investments to reduce risk.
Dividend: A payment made by a company to its shareholders, usually in the form of cash or additional shares of stock.
Derivatives: These are complex and should be approached with caution and with specialist advice. The value of derivatives is based on the performance of another type of asset.
Hedge funds: Classed as an alternative investment. These can include traditional investments in stocks and bonds, as well as more complex strategies like short-selling (betting that an asset will decrease in value) and leverage (using borrowed money to increase investment exposure).
Portfolio: A collection of financial investments, such as stocks, bonds, and other securities, held by an individual or institution.
Private equity: Classed as an alternative investment. These are essentially Investments in private companies that are not publicly traded. Investors often acquire ownership stakes in private firms.
Liquidity: The ease with which an asset or security can be bought or sold in the market without affecting its price.
Market capitalisation: The total value of a company's outstanding shares of stock, calculated by multiplying the share price by the number of shares.
Return on Investment (ROI): The gain or loss made on an investment relative to the amount invested, usually expressed as a percentage.
Risk tolerance: The degree of variability in investment returns that an investor is willing to withstand.
ROE (Return on Equity): A financial metric that measures the profitability of a company by expressing net income as a percentage of shareholders' equity.
Securities: Securities are made up of 3 asset types: derivatives, equities, and bonds.
Unit trust: An investment vehicle that pools money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities where you buy units of a fund which is run by an experienced fund manager.
Ryan is a co-founder of the firm RMT Group Limited and the brand Regulated Advice. Ryan is also a content writer for this site.