Investing For Beginners (Your 2023 Essential Guide)
Want to learn about investment because you're worried about losing money?
Or not making enough of it in 2023?
Most people have these worries in 2023 post pandemic.
The general market conditions & sentiments are hard for everybody.
It’s not your fault. The world-leading financial institutions are not making it easy for us to understand how to invest our money.
You’re not alone. Most businesses & investors are challenged to make profits.
Especially that the knowledge, skillsets & attitudes to make money are very different from those required to keep or save it.
Academia, unfortunately, is mostly theoretical and doesn't really do a good job teaching investing for beginners. It’s challenging even for universities to be up to speed with the fast-moving developments in the investment world. So they can’t really teach you what you need to know if you want to engage in lucrative investments.
In my early years as a kid, I noticed that the richest people I come across or hear about were what used to be called “businessmen'' (now a “business person”).
They had one thing in common.
They had their own businesses...
These businesses offer products & services to help people solve their problems or reach their goals.
This made me so curious and I spent much of my time learning more about the world of business... To become a master of its rules. I wanted to break it without breaching the law!
This then led me to study & work as a corporate lawyer and I’ve been practicing corporate law for over two decades now.
My passion for business further led me to become a business owner, board member & investor.
I've learned that big money is made from investing, rather than business. Investors who buy & sell businesses & assets at many multiples of their value.
So I came to the realisation that my real product is my business & equity in other assets that I can buy & sell.
It took me a while to figure out how to do this profitably. Let me tell you, it is quite challenging to figure this out on your own!
This is why I got the epiphany to write about it and share my knowledge and discoveries with you. I started a few days ago when I wrote the series “One Band Brands for Digital Nomads”.
If you still find making & keeping money challenging in 2023, like most entrepreneurs I come across, you’re in for a treat.
I’ll publish my findings in this “Investment Asset Classes Definitive Guide 2023” and I’ll make sure to explain everything to you in plain language to make it easy to learn & understand.
This guide includes the valuable lessons I’ve learned in over three decades of investing. I have experience in many parts of the world as an investor & corporate lawyer, in almost all asset classes…
The story began when I was a kid walking with my grandfather in downtown Cairo around the stock exchange. The Cairo Stock Exchange is where he used to buy big papers with coupons attached to it called “stocks”.
I didn’t know much about stocks back then, but I eventually learned all about common investment asset classes from traditional real estate to modern days blockchain & cryptocurrency.
I’ll tell you all you need to know to have a comprehensive understanding of the different asset classes where you can invest & become a better informed investor.
Ready to take your equestrian business profits to the next level?
Your info is secure & handled with care as per our policies & terms below.
Ready to dive in?
Here's an overview of what is covered:
Let's start with first things first:
How Do You Define Investment?
Investment, in my view, is spending money (or its equivalent), time or energy to gain profit as income or value growth in the future (short, medium or long term) while assuming its related risks.
What Are Examples Of Investments?
A good example would be if you spend money to buy a stock or share in a publicly-traded company like Google, to gain a profit or grow wealth from:
- the appreciation of the value of the stock if its price goes up after you bought; and
- the dividends (or profits) that Google distributes regularly to stockholders.
So let’s imagine that on the 4th of October 2021, you bought 1 stock of Google (Alphabet) publicly traded stocks on the (Nasdaq Stock Market in New York, USA), which has the ticker symbol or code (GOOGL), for USD $ 2’622.
Then you sold it on the 4th of November 2021 for USD $ 2’995.
This means that you gained a growth of the value of (2’995-2’622) which equals USD $373
This is your gross profit before deducting transaction fees & taxes, if applicable.
Now, let’s imagine that Google also distributed dividends or profits to stockholders of, let’s say, USD $30 per share. Then your gross profit is (373+30) equals USD $ 403 before fees & taxes, if applicable.
You then deduct the transaction fees & taxes to calculate your net profit.
If you invested USD $ 2’622 & got a gross return on your investment of USD $ 403. That’s a gross return on investment (or “ROI”) of 15% on your investment in one month’s time.
Actually, it seems that Google doesn’t distribute dividends to stockholders, but rather cash buybacks to investors which amounted to USD $9.1 billion in 2018, which represents about 30% of its net profits that year.
The Two Main Types of Investments
Any investment can fall into two main categories:
- Indirect (portfolio) investments; and/or
- Direct investment
Let’s say that based on your market research you discovered that there will be a growth in sustainable demand for coffee in the future.
This assumption made you want to invest in coffee!
Now, you have two investment options here:
- You either buy a paper investment that represents coffee or coffee stock (or equity in a coffee asset); and/or
- Grow coffee beans, buy coffee beans, or start a coffee company.
A paper or (portfolio) investment can be a stock or bond in an existing coffee business. It can be a unit in a coffee investment fund, or a coffee ETF (Exchange Traded Fund) which is a future contract of coffee beans as a commodity. You can also buy a crypto token, coin, or currency related to coffee.
Let’s explain each of these asset classes or investment types in more detail:
You can make Portfolio Investment through:
- Equity Investment; and/or
- Debt Investment
Invest in Companies' Shares & Capital Stocks
To understand a share of a company or company stock of capital,
let's first define a company or corporation in the USA, UK & other English-speaking regions.
What Do You Mean By A Company Or Corporation?
A company or corporation is a legal entity of limited liability that aims to do business for profit & grow its wealth value. It is separate from the group of people who own its capital stock. Its capital stock is divided into equal shares.
A corporation is governed by the Corporate (particular to each individual State in the USA) or Company Laws (The Companies Act in the UK) of the State where it is incorporated.
A share of capital stock is the single unit of a company's total capital stock.
What does “Publicly Held” or “Privately Held” Corporation Mean?
A Publicly Held Corporation
This is a publicly-traded company. It’s a company registered & governed by the Securities & Exchange Commission (“SEC”) for its shares to be traded by the public.
A listed corporation, is a company whose shares are listed for trading on a Stock Exchange, like the New York Stock Exchange in Manhattan, for example.
A Public Corporation
A Public Corporation can also mean a company created by a public authority for public, municipal or political purposes.
Is the share of capital stock of a publicly or privately held company that is privately owned & not traded on a stock exchange.
A Privately Held Corporation
It is a company whose shares are held by a small group of people. Buying & selling its shares are governed by the Shareholders Agreement between its stockholders.
What Are The Three Types Of Companies?
Companies fall into three large categories:
Sole Proprietorships, Partnerships & Corporations. Here are more details about each of them.
1. Sole Proprietorship
A Sole Proprietorship is a business that is owned by one person, who gets all the profits & suffers all the loss.
Partnerships are when two (2) or more people agree to do business together by sharing its profits & loss proportionally. They are called partners.
Partners also have two (2) types when it comes to their liability:
General & Limited.
General Partners have unlimited liability for the debts of their partnerships as they do the day-to-day business.
Limited Partners have liability limited only to the value of their investment in the partnership, provided that they do not take part in managing the partnership.
A company with limited liability is a corporation.
There are many forms of corporations. The most common of which are:
A corporation whose stockholders are taxed for its profits.
These are typical with a limited number of shareholders.
A corporation whose profits are taxed through it, not through its stockholders.
These are typically larger corporations with many shareholders.
Limited Liability Companies
These are a hybrid between partnerships & corporations.
Their partners enjoy limited liability, but are taxed as partnerships.
Their capital stock is not traded publicly or on a stock exchange.
They are typically smaller than a typical corporation.
Other Commonly Used Companies
Investors often invest through a Special Purpose Vehicle (“SPV'') to limit their liability in a specific deal. It’s commonly a limited liability company that they incorporate for that purpose.
Investors also sometimes refer to a Group. This would represent a Group of Companies that are under common ownership.
A Strategic Alliance is when two companies in complementary businesses form a coalition to gain a certain advantage in marketing, costs, efficiency, sales, supply, branding, etc…
A Joint Venture is when two companies work together on a joint project to share profits & losses.
A Consortium is several companies gathered to participate in a huge turn-key project or a syndicated loan to finance a huge project.
A Holding Company is a company that owns the capital stocks of other companies or a Group. A Subsidiary is a company majorly owned by one Parent or Holding Company. An Offshore Subsidiary, however, is a company incorporated under the laws of the country different from that of its Parent Company to take a certain advantage like finance, interest rates, taxes, cost of labor, inflation, technology, raw materials, etc…
For a company to expand its business in different regions it can also establish branches, scientific offices, agents, affiliates, distributors, etc...
What Are Examples Of Investments?
Good examples of investments are when you invest in buying Stocks or Bonds.
Invest in Companies & Stocks
You can invest in shares of any of the above-mentioned companies.
This would represent an equity investment. Equity means you become a proportionate owner of the company that these shares belong to.
Being a share owner or shareholder means you share the profits or losses of that company proportionately when the company’s board decides to distribute dividends or profits to shareholders.
You can also attend the general meetings of the company where you own shares and take part in its decision-making process. When you do that, you’re called an Active Investor, as opposed to a Passive Investor who owns shares, but doesn't participate in those meetings.
As you can imagine now, when you subscribe to or buy a share in a company,
you become a Shareholder or debtor to that company, because you have to pay for the price of the shares you’re buying. This is your Equity Investment.
According to Semrush 2021 report, searches for “invest in stocks” plummeted 64% year over year.
What Is A Meme Stock?
A meme stock is a stock that gains popularity among investors through social media.
According to Google Trends, in the USA, the term "Meme Stock" was searched 10X more in 2021 than in 2020.
What Is Equity In Accounting?
Don’t confuse your equity in a company with the company’s equity from an accounting perspective.
From an accounting perspective: Equity = Assets - Liabilities
When you deduct all that a company owes from all that it has,
you’re left off with what it is worth (or its equity). When you divide that value by the number of shares of that company, you come to the book value of your equity investment or your share of capital stock at this company.
This book value (or accounting value) can be different from the market value of your shares. Your share’s market value is the value it is traded at by sellers & buyers who may think their value is different from the accounting value.
Investing In Bonds
Bonds are debt instruments or securities that companies issue to borrow money or in other financial words raise capital. Bonds are issued for a certain term & at an interest rate.
When you invest in a bond you get its coupon which represents its interest payment.
At the end of a Bond’s term (maturity) the issuing company repays you back your principal amount (redemption of the bond).
Companies & governments can both issue Treasury Bonds or debt securities.
The most common of which are T-Bills, T-Notes & T-Bonds.
When you buy a Bond of a Company, you become a Bondholder or creditor to that company, because the Company has to pay you back your principal + interest.
This is your Debt Investment.
Bonds are rated by Rating Agencies like Standard & Poor's, Fitch & Moody's.
What Do Bond Ratings Mean?
A Bond Rating is a grade given to a bond by a rating agency.
It indicates its creditworthiness. The grade indicates a bond issuing company’s ability to pay a bond's principal & interest on time.
The rating indicates the degree of risk when you invest in a bond.
What About Companies’ Financial Ratings & Valuations?
Knowing your numbers is a good starting point to valuate a business.
You can get numbers by making a legal & financial due diligence & audit to get all
the financial statements & legal position of a company.
What Are The 3 Most Important Financial Statements?
The important Financial Statements of a company are:
- The Balance Sheet
A snapshot of a company’s financial position at a certain point in time. It includes its assets, liability & equity.
- The Income Statement
A track record of the income & expenses of a company over a period of time.
- The Cash Flow Statement
A detailed track record of how cash flows in & out of a business.
It’s the lifeblood of any company. A company can be very profitable, but still go bankrupt for cash flow issues.
You can get all these statements & further corporate documents through due diligence.
What Are Financial & Legal Due Diligence Reports Of A Company?
Financial, commercial & Legal Due Diligence Reports are thorough, exploration & explanation of a company's financial, commercial records & corporate legal documents including any meeting minutes, contracts & litigation documents.
Legal & Financial Audit Reports are objective examinations & evaluation of the financial statements & corporate legal documents of a company. This is to make sure that the financial records & corporate legal documents are legal, legitimate, fair & accurate.
These reports give you all the information necessary to have a complete picture of a company in the marketplace.
Where Should A Beginner Invest?
Beginners should take their time to learn, hone their investment skills & attitude before investing.
For starters, there are many demo investment accounts available where you can try out to wet your feet without losing real money.
Investment is a risky venture.
Learning fundamental & technical analysis will help you know what good asset classes to invest in & when to trade them.
Understanding the different economic cycles will also come in handy…
The last step is to determine what percent of your total money you want to invest. You should decide right from the start what price you’ll sell at & take your profits. You should also decide early on at what time you’ll sell, stop your loss and call it a day. The golden rule is to buy low & sell high.
Naturally, it’s best not to put all your eggs in one basket, or in other financial words it’s best to “Diversify”.
This is all easier said than done because investing requires discipline in managing your fear & greed.
What Is Meant By Fundamental Vs Technical Analysis Of Financial Markets?
Fundamental Analysis focuses on the long term investment, market, ecosystem, fair values, companies’ management, supply, demand, assets, liabilities, equity & Fundamental Analysing Ratios like:
- Current ratio is a good example of a liquidity ratio.
Current ratio = current assets/current liabilities (+2 is ok)
- PE Ratio price to earnings ratio compares the stock price to its earnings.
PE Ratio = Stock price/1 year earnings/number of shares
Technical Analysis focuses on short term trading, price history, trends, moving averages, indicators & patterns seen on price charts. Which reflects the cycles & the psychology of the market participants.
The main principles of technical analysis are:
- History repeats itself
- Markets move in trends (up, down or sideways)
- Trends are like waves that have upper (resistance) & lower limits (support)
- Market prices discount or take all fundamentals into consideration
- Fear & greed are the 2 emotions that motivates the market participants
- Moving averages are the trends
Technical analysis is contrasted with fundamental analysis. Each has its advocates who typically have opposite perspectives of the markets. I personally see that both complement rather than oppose each other.
Fundamental analysis tells you what good assets are worth buying, & their fair values & technical analysis tells you when to buy & sell them.
If you don’t want to take an active role in investing yourself, you can find investment professionals who have a fiduciary role to prioritize your interest & invest for you.
Another option would be to buy units in Investment Funds or Exchange Traded Funds (“ETFs”)
What Is A “Fund” In Simple Words?
To fund means to provide money.
Funds are amounts of money.
A fund, however, is a vehicle for professionally collecting, holding, diversifying & investing money & hedging risks.
What Are The Types of Funds?
There are many types of investment funds that suit almost all types of investors.
There are pension funds (retirement fund), mutual funds & hedge funds (risky funds).
How Can You Invest In A Mutual Fund?
According to Forbes, A mutual fund is an investment vehicle that pools investors' money.
It invests this pooled money in financial assets like stocks & bonds.
The combined assets of the fund is known as its investment portfolio.
The most common type of mutual funds are:
- Open-Ended Funds or Company; and
- Closed-Ended Funds or Company
It’s a fund (or company) managed by a financial institutional investor (or fund manager), who chooses various asset classes, debt securities (bonds), shares, or stocks according to its investment objectives & strategy.
A Funds’ shares (or units) are also traded in the market & you can buy them.
Their prices are related to the value of the investments the Fund represents.
You can also redeem these shares at daily market prices, as opposed to the Closed-Ended Funds whose shares’ prices can freely move up or down as you’ll see below.
It is called open-ended because the number of its shares grows as more investors join as opposed to the Closed-Ended Company or Fund.
It’s a company with a fixed number of shares managing an Investment Fund through a professional fund manager.
The price of its shares can move freely up or down regardless of the asset value of the Fund investments that it represents.
Funds commonly charge you 2% transaction fees & 20% of your profits as management fees. These fees may vary widely from one fund to another & from one country to another.
Another option for a beginner or amateur investor is ETFs.
What Are Exchange Traded Funds (“ETFs”)?
ETFs are baskets of securities that you can buy or sell.
You can trade them through a brokerage firm on a stock exchange.
ETFs are offered on almost every asset class.
Accordingly, you will most probably find an ETF that suits your investment needs & risk appetite.
ETFs pay out qualified dividends that are taxed as capital gains, & non-qualified dividends that are taxed at the investor's ordinary income tax rate.
All the above are ways to invest indirectly, or in financial terms: portfolio investments. This means a collection of paper investment classes like stocks, bonds & funds that you do not directly or actively manage or control.
What if you have the knowledge, skill & experience & want to manage & control your investment directly yourself?
You have several options for this:
- You can start your own company or invest in real estate; or
- You can merge your existing company with another existing company; or
- You can also buy an existing company in whole or in part which is technically called (“acquisitions”)
Mergers & acquisitions are referred to as (“M&A”s). Check out the:
THE BUSINESS BUYING BLUEPRINT: A step-by-step road map for investors looking to use (M & A) for growth, profit & scale.
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What Does Direct Investment Mean?
Direct investment is when you invest your own time, money, or energy to start your own business and in time grow its value & profits.
Also, Direct Investment is when you spend money to buy a business (or its majority controlling stock capital) in order to directly manage it yourself or through your own management, board, or directors.
You don’t have to be a millionaire to do that by the way.
You can buy companies with zero out-of-pocket money if you know how.
You can learn more about this here (Roland Link)
You directly invest also when you buy a physical asset such as a piece of land, real estate, or machinery for future growth of value or profits.
We’ll talk about these types of investments below in a bit.
What Exactly Is The Definition Of Real Estate?
Real Estate or Real Property is a piece of land and/or the buildings on it.
Property is something you own.
So your real property is the land and/or the building on it.
As opposed to Personal Property which is the tangible movables (e.g. bicycle) you own and/or Intellectual Property which is the intangible things you own (e.g. patent).
It's very important to note that, the Conveyance of Ownership Title in real estate in many countries does not transfer from the seller to the buyer except by registration, through a Notary Public, of an official Certificate of Title at a competent local authority like Torrens, Land Registration or Land Registry (in the UK) Registration of the Land Titles or Registrar of Titles (in the USA).
This is where it is important that the seller makes a Title Search to verify that the seller has legitimate ownership title & that this particular real estate is free from any liens or encumbrances or any third parties’ rights.
How Do You Invest In Real Estate?
You can start honing your skills, learning & investing in Real Estate.
Immerse yourself in the real estate market.
Look for what people want to buy or rent & what’s offered for sale or lease.
Try to find deals that don’t require that you pay money out of your own pocket.
Is 2022 A Good Year To Start Investing In Real Estate?
2022 is a relatively good year for real estate investment since interest rates are relatively low.
Many people & businesses are selling real estate post the pandemic. So if you can afford to provide money, and if you can use a mortgage to buy real estate (paying only 20% of the unit value) & renting it out to cover the mortgage payment, then go for it..
Can You Make Money In Real Estate?
Like in any other investment, you can make or lose money in Real Estate.
It depends on what you do…Many investors & wholesalers are going out of business.
They don't have enough inventory, creativity or even discipline...
Real estate is a huge $162 Billion wave of opportunity!
So many people ignore opportunity when it is staring them in the face & ultimately end of regretting that choice.
I want you to avoid being that person.
The problem that I see in real estate is everyone is using the same old tired & out-dated ways of trying to do deals. Wholesalers work their fingers to the bone to put a deal under contract, only to find out nobody wants to buy it!
I hear these stories all day long in the real estate market, but it doesn’t have to be this way...
There is a way to know how to instantly target the most motivated sellers in any area and get your phone ringing. There is a way to reduce your marketing costs while targeting leads that few others have access to, like for example tax-delinquent properties, financially distressed, vacant & probates...
If you're interested in this opportunity, I can show you how to cash massive checks from these hidden deals.
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The disadvantage of real estate is sometimes the liquidity issue. Which is the time it can take from the date you decide you sell a property to the time you actually sell it. It can take a few days to a few months & in some extremes a few years. As opposed to other much more liquid investments like Forex or Shares that have daily large trading volumes so you can literally sell your asset just in a few minutes after you decided to do so.
How Can I Invest In Real Estate Without Money?
Agreements to Buy, Let, or Sublet Real Estate?
You can research online to see what exactly people want to buy or rent.
Go look who wants to sell or lease some of these exact units.
Shortlist the best of them according to what the buyer or tenants want.
Now, sign an agreement with the seller or lessor to give you or someone you choose, the right but not the obligation to buy or rent these real estate units within a few days in the future at a bit of a discount.
Once you have that agreement, you then go to your potential clients, sign an agreement with them too. This second agreement states that if they want to buy or rent the real estate you show them, they’ve got to buy it exclusively through you, not directly from the owner.
Show them the real estate & close the deal if they like what they see.
You close the deal by passing your contract with the seller to your client for a fee. And that’s your profit right there.
You can do the same with real estate offered for lease.
You can also sub-rent or sublet at a profit.
Do your homework to check the legalities or ask a lawyer about how to do that.
Some countries require licenses or certain legal restrictions.
Be creative so you can overcome any obstacle without breaking any laws.
Real Estate Investment Funds
There are also real estate investment funds that you can invest in. These are funds that specialize in real estate assets.
Real Estate Investment Trusts (REITs)
A trust is an agreement under which one party holds title of a property for another party's benefit.
A REIT is company that invests & manages real estate. The Majority of its income (typically 80%) distributed to its shareholders.
What Is The 2% Rule In Real Estate?
The 2% rule is the percentage you should be asking for in rent. If your property's price is $400,000,
you should ask for $8,000 per month.
What Is The 3% Rule In Real Estate?
The 3% rule is that you should not pay for the price of your house more than 3 times your annual income. This is a quick way to know your affordable price range.
What Is The 50% Rule In Real Estate?
The 50% rule is that real estate investors estimate that a property's operating expenses should be roughly 50% of its gross income. For example property taxes, insurance, repairs & maintenance expenses.
What if Real Estate is not your cup of tea. You’d rather like to invest online.
My Investment Strategy
My 2 cents in any investment are as follows:
- Don't lose money
- A dollar saved is a dollar earned
- $100 bills won't lie in the streets for long
- Every sale is also a purchase
- Only invest the amount of money that you can afford to lose
- Buy premium assets in premium locations or small parts thereof
- Follow the market cycles
- Don’t put all your eggs in one basket
- Find deals that don’t require your own money down (zero out of pocket)
- Plan your exit levels for both profit or loss before you invest
- Control your fear & greed
- Buy low & sell high
- As long as you didn’t sell or buy you still haven’t actually gained or lost any money
- Make sure you buy from a legitimate owner
- Make sure what you buy is free from encumbrances like liens or mortgages
- Grow your network of brokers, assessors & appraisers so you don’t overpay
- Don't put more than 10% of your investment portfolio in on asset class or market
What’s The Difference Between Growth, Value & Income Investing?
Some investors like to identify themselves as growth or value investors.
As two opposing teams of advocates, I think both complement each other.
Value investors focus on buying assets at bargain prices.
Growth investors focus on buying assets that have exponential growth potential.
Income investors focus on buying assets that generate higher income or returns.
I personally like a mix of all & don’t think these different approaches should compete against each other but rather complement each other.
You can buy a growth stock that generates good returns at a bargain price.
What I don’t like is to take loans to finance my investments or business.
I like bootstrapping & figuring out creative deals that don't require me to spend money out of my own pocket.
You also don’t have to start by employing a team & paying salaries before the business can afford it when it is absolutely necessary.
With today's platforms & worldwide outsourcing options, virtual assistants & professionals, you can start or grow a one-person small & lean business that makes huge impact & profits.
I like that you create deals where a seller can finance or you can defer payment,
carve out unnecessary inventory, assets or liabilities, use technology, systems & automation to reduce cost, increase efficiency, or cut waste. Find better ways to outsource, increase sales, improve marketing & profitability.
You can hardly get stuck when you think creatively out of the box.
It’s all about your mindset & imagination.
You have to believe that it’s doable & that you can do it.
Online Digital Companies
You can start your own digital company online in 2022 without the need to have an office, hire employees or pay for monthly utility bills.
As we have mentioned in previous posts, common online businesses include:
consultancy, coaching, service provision like web design, content creation,
digital marketing. You can also offer education courses, Apps/Saas (Software as a Service) & virtual community memberships.
You can check out this link to learn more.
The latest trend now in web 3.0 is blockchain & cryptocurrencies.
Here’s a glimpse of what these are about.
What Exactly Is Blockchain?
Blockchain is a technology that offers a decentralized digital alternative to the traditional centralized financial systems.
Blockchain is a ledger for recording transactions digitally in a way that makes it difficult to change because transactions are duplicated & distributed among a network of computers.
Each transaction is a Block. All the blocks form the Chain or Blockchain.
Blockchain Technology is often faster & less expensive than traditional financial intermediaries.
What Is Cryptocurrency & What Is It Used For?
Cryptocurrency is a Digital Currency based on Blockchain Technology.
Cryptocurrencies are used to store value and/or are used as a medium of exchange for transactions like money transfer overseas, for example.
Many countries now officially accept payment by Cryptocurrencies.
There are a variety of Cryptocurrencies, Tokens & Coins that are created using Blockchain Technology like Bitcoin, Etherium, Dogecoin, NFTs & Creator Coins.
What is Bitcoin & How It Works?
Bitcoin is a cryptocurrency that relies on peer-to-peer cryptography.
The code that runs the Bitcoin system, is open source. So it can be downloaded & analyzed by anybody.
A public ledger records all bitcoin transactions. Transactions are held on decentralized servers around the world.
Bitcoin's price increased, from less than $1 in 2011 to more than $68,000 as of November 2021.
Bitcoin is created by Satoshi Nakamoto. It's the name used by the pseudonymous person who developed bitcoin.
What is Etherium & How It Works?
Ethereum is a decentralized infrastructure platform. It's an open-source blockchain with smart contract functionality.
A smart contract is a transaction which automatically executes a legal contract when its terms & conditions are met by its parties.
Ethereum is second to Bitcoin in market capitalization. Ethereum was conceived in 2013 by prominent computer programmer Vitalik Buterin in Switzerland.
You keep your Cryptocurrencies in your “Digital Wallet”.
Cryptocurrency Exchanges are the marketplaces where you can buy, sell & trade cryptocurrency like Coinbase & Binance. Some centrally-regulated banks also offer Crypto trading like Swissquote, for example.
According to Semrush 2021 report, the search term “best cryptocurrency to invest in” has also experienced significant growth, up 233% for the year.
Sign up to get your SPONSOR NUMBER to open your Trading Account at Swissquote & get CHF100 Trading Credit by following the 5 simple steps below:
Once you sign up above, you'll get an email with your Sponsor Number which you can use to open your trading account at Swissquote & get CHF100.- Trading Credit.
To open your account with Swissquote, follow these steps:
- Click on "Open your account" button.
- Fill in the Application Form.
- Enter the Sponsor Number & Sponsor Name, that you'll get in your inbox soon, in the corresponding field.
- Once your account is opened & you have made a deposit of CHF 100, you will receive your CHF 100 Trading Credit. It can take up to 24 hours for the Trading Credit to be deposited into your account. You can request to deduct your Trading Credit from your trading transaction fees.
- After your account is opened, you can also recommend Swissquote. You & your friends will both receive a Trading Credit of CHF 100.
What Is Dogecoing?
Dogecoin is a cryptocurrency created by software engineers Billy Markus & Jackson Palmer.
They wanted to create a payment system as a "joke". They intended to make fun of the wild speculation in cryptocurrencies in 2013.
Dogecoin is the 1st "Meme coin".
What Is the Most Important Thing In Investing?
The most important thing, in my view, is not to put all your eggs in one basket.
In financial terms economists & investment bankers call this “Diversification”.
Diversification means minimizing risk by mixing a variety of different asset classes in your “investment portfolio” (collection of investments).
The reason behind this is that “birds of a feather flock together”.
You need to understand the relationships of the different drivers of the economy.
There are main drivers of the economy like inflation & interest rates that affect asset classes positively or negatively. The main trigger is the interest rate.
To understand this a bit more, imagine the central bank raising interest rates to 20% per year for deposits like what happened in Egypt a few years back...
If you have money to invest, you’ll probably think that if you deposit it at the bank, it would be safe. You’ll gain 20% & double your money in about 5 years or less because of the power of compound interest.
Your lost opportunity now is that you will not invest in real estate or stocks.
You might not even start or grow your business because the cost of financing those would now be too high, in case you need to take out a loan.
Based on this, the more the interest rate increases, the more the real estate market will theoretically go down, especially if this is coupled, for example, with less supply of land to build on due to a governmental zoning decision of sorts.
So the best thing to do would be to hold both assets at the same time together with a commodity like gold for example. If on top of that you are growing your own business, this will greatly reduce your risk if any one asset starts to slump since they don’t all go up or down together at the same time.
What Are Commodities?
Commodities are tangible economic resources or goods that can be bought or sold for trade. Investors trade commodities to diversify their portfolios & minimize their risks.
What Are The Types Of Commodities?
There are Hard Commodities:
- Precious metals like gold & silver
- Energy like oil & gas
- Livestock & meat
Gold is a safe net & store of value in times of uncertainty or political problems.
Given the post-pandemic uncertainty, gold will be an important part to diversify investment portfolios in 2022.
Gold is a good hedge against uncertainty or political risk.
Also, commodities precede their related stocks. So if gold goes up then the companies that mine gold or have gold inventory will probably also go up.
And Soft Commodities:
Agricultural products like wheat & coffee beans.
To understand how you can trade commodities, let’s first understand financial derivatives.
What Are Derivatives In Simple Words?
Derivatives are innovative & advanced financial instruments, security, products or asset classes that financial institutions create & offer to their clients. Its value is derived from another “Underlying Asset” (or another asset) like commodities, interest rates or stock indexes.
These Underlying Assets’ prices move freely in the market.
Derivatives help investors hedge or minimize the risk of uncertainty or the future price volatility of the Underlying Asset which is separate from the price of the Derivative Product itself, but yet is linked or correlated with it.
Derivatives enable investors to profit regardless of prices going up or down.
It helps you profit from prices going down & below is a bit of an explanation in case you’re feeling a little lost here.
Derivative trading is a speculation of the future that traders or investors do to profit or hedge their risks.
What Are The Types Of Derivatives? What Are Derivatives Examples?
There are 4 common types of derivatives:
Options, Futures, Forwards & Swaps.
How Can You Make Money Even When An Asset Loses Value?
Options are contracts that give you the right, not the obligation, to buy (Call Option) or sell (Put Option), an underlying asset or commodity at a fixed price within a specific timeframe.
Let’s say you bought a Put Option to sell 100 Tons of coffee beans at a price of $35’000 for 3 months starting Jan 1st, 2022. This means that regardless of whether the coffee beans’ (underlying asset) market price actually went up or down, you will sell at $35’000.
Let’s imagine there is an over-supply of coffee beans from Brazil due to good weather conditions, much more than the demand for it worldwide, so the market price of the 100 Tons went down to $30’000.
In this case, your option is now worth $5’000, since you can still sell it at $35’000 & the more coffee beans prices go down, the more you win.
Conversely, if the market price of the Underlying Asset (coffee beans) went up to $40’000, then the value of your “Put Option” has decreased by $5’000.
Now, let’s imagine that you have a factory that produces ready made coffee capsules that competes with Nespresso & you want to keep your supply prices stable all year long so you can stabilize your cost, accounting, budget & profit.
You can either buy a stock for the whole year at a fixed price if you have enough money, then pay for its warehousing costs & insurance. Or you can buy Call Options, Futures or Forwards that fixes your purchase prices all year long.
Here’s an explanation of Futures & other Derivatives:
Futures are agreements to buy or sell an asset or commodity at a fixed price at a specific future time. Futures are traded on Exchanges like the Chicago Board Of Trade & Mercantile Exchange.
Forward Contracts are the same like Futures except that they are not traded on an Exchange.
Swaps are exchanges of an asset for another asset.
There are commodities, interest rates, currency & stock swaps.
What Does CDF Mean In Trading?
CDFs are Contracts For Difference (CDFs).
It allows investors to trade on the future price of an Underlying Asset, without actually owning or taking physical delivery of the underlying asset.
Instead of you going to buy or sell the Underlying Asset itself, you trade CDFs to speculate (or in other words, hoping to gain while assuming the risk of loss) on the Underlying Asset’s price movement. The CDF price goes up & down proportionally.
Is There A Way To Trade Commodities Online?
You can trade commodities online through Contracts For Difference (CDFs) These too are Derivatives. Many regulated banks, financial institutions & platforms offer them online for Shares, Commodities & Forex.
To diversify your investments in different assets & markets around the world, you might need foreign currencies different from the currency of the country where you live…
So from where can you get any currency you want?
From the Forex.
What Is Forex & How Does It Work?
Forex is the Foreign Exchange Market where currencies are traded around the clock all week long. It is the largest & most liquid market in the world.
If you trade between two countries, let’s say Switzerland & USA, you will need both currencies. You will need to go to the Forex Market because it is wise, in this case, to diversify your money half in Swiss Francs CHF & half in US Dollars $USD.
In this way, your net worth won’t get affected if any one currency goes up or down against the other.
Currencies like USD Dollars or Swiss Francs CHF are traded in pairs (or two currencies) that look like these pairs:
Here you’re buying one USD by selling CHF, maybe assuming that USD will go up against CHF.
Here you’re buying one CHF by selling USD, maybe assuming that CHF will go up against USD.
What Are The Best Investment Apps For Beginners In 2023?
The best investment app for you is the one that makes sense & feels good to you. There are many investment apps you can use to invest. It’s always good to do your own research to find your favourite one.
My favourite one at the moment is Swissquote.