Here is a piece on Investing vs Trading, Investing is for long-term, while trading is for short-term...... Investing versus trading SSL In The Money with PATRICK ROBINS Wednesday, July 09, 2014 IN todays climate we all need to make more money on our investments. As more and more investment opportunities arise, the need becomes more apparent to educate the public about investing and getting the right advice. It is important for investors to have a general understanding of the concepts involved. Investing is a method used in the attempt to make a profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, bonds, mutual funds and other investment instruments. These investments are often held for many years or even decades, taking advantage of the benefits such as interest, dividends, and stocks splits that you will receive. While markets will inevitably fluctuate during this period, investors will hold with the expectation that prices will rebound and any losses incurred will eventually be recovered. Typically, investors are more concerned with market fundamentals, such as price/earnings ratio and management forecasts. On the other hand, trading involves the buying and selling of stocks, commodities and other instruments, with the hope of generating quick returns on a short-term basis. Usually, profits that are generated from trading involves buying a stock at a low price and selling at a higher price. This is done within a relatively short period of time. To be an investor does not require you to have large sums of money. Investing even a small amount can produce considerable rewards over the long term, especially if this is done on a regular basis. The first step towards successful investing is to determine your goals, then to develop a sound investment plan designed to meet them. The amount of time you have to hold an investment in order to meet your investment goal is called the investment time horizon. This will vary with each individual investor. Generally, if your investment time horizon is more than five years, the majority of your funds should be invested in stocks. The longer you are able to hold an investment, the more chance there is that long-term growth in returns will overcome short- term fluctuations in performance. Holding for the long term helps to overcome the volatility that accompanies these types of investment. One of the most effective ways to diversify your investments is through asset allocation, and the biggest factor that should influence your decision is time. Asset allocation is a technique used to spread your investment dollars across several asset classes such as stocks, bonds, cash etc. This is important as the different asset classes do not all respond to the same market conditions in the same way at the same time. Ideally, if your investment in one category is performing negatively, and you have assets in another category that is performing well, then the gains in the latter will offset the losses in the former; minimising the overall effect on your portfolio. Determining a persons investment objective is closely linked to their risk tolerance. Their appetite for risk is often a major factor determined by age, marital status, education, investment experience etc. Each investor has different objectives that are affected by short and long term needs. The four most commonly used categories that define your investment objectives are capital preservation, income, growth and speculation. The objective of capital preservation is to protect your initial investment by choosing investments that minimise the potential of any loss of principal. Income investors seek a maximum amount of income given their risk tolerance, and are willing to forgo capital appreciation and growth of income in order to seek a higher level of current income. Growth investors seek current income, but also seek income and capital gains over time. Speculative investors seek maximum return through a broad range of investment strategies which generally involves a high level of risk. All investments involve risk, including the potential to lose your principal. However, some securities such as stocks involve much more risks than others. Higher risk investments may have the potential for higher returns, but also for greater losses. The higher your risk tolerance, the more you may invest in higher risk securities offering the potential for greater returns. Importantly, your risk tolerance must be determined from the outset. Your investments should always be working for you. The sole purpose is to increase your earnings, whether in the short, mid or long term. If your financial affairs have been managed properly and effectively, then your investment objective should yield the desired results. Understanding your personal financial position, investment time horizons and risk tolerance will guide you to an appropriate investment objective. Do not hesitate to get expert help if you need it. Be sure to periodically review your portfolio to ensure that your chosen mix of investments continues to serve your investment needs as your circumstances change over time. Patrick Robins is a wealth advisor at Stocks & Securities Ltd. Contact: probins@sslinvest A passer-by is seen in front of the electronic stock board of a securities firm in Tokyo, Japan. The goal of investing is to gradually build wealth over time through a portfolio of stocks, bonds and other investment instruments.
Posted on: Wed, 09 Jul 2014 12:06:03 +0000
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