These are exciting times to be an investor in equities globally. We say this despite the turbulence of COVID-19 which has caused tremendous volatility in the markets. COVID-19
has caused a disruption which is spurring innovation in different sectors and this is bound to offer plenty of long term opportunities. As a new investor, hopefully young as well,
we believe your focus should be on building wealth as a prudent investor.
In our investing experience we have found these to be the key factors to building wealth:
Also, you have to remember you cannot build wealth overnight. It is a process which begins with starting small.
As a new and young investor you might be wondering how to participate in the market. Even if are not young, if you haven't really invested in the markets then you may be asking the same question.
Our answer to this question is very simple: These investors we believe must start small but aim big over the long term. Here is a roadmap which we have put together for new investors.
This roadmap is highly predicated by the extent of risk these investors can take.
|Determine Risk Aversion Level||
Investing in Stocks and ETFS involves risks. The risk of losing money is real.
Determining the risk aversion level first before jumping into buying Stocks or ETFS is the most prudent action.
In general, if the risk aversion level is very high, holding individual stocks is not going to be a pleasant experience.
If the risk aversion level is low, holding high quality individual stocks can provide excellent long term wealth creation benefits in a diversified portfolio.
|Can Take No Risk At All||This category of investors have to park or invest their money in highly safe US Treasury Securities and Bank Certificate of Deposits.
This will help keep the money safe but its earning power is likely to diminish over time.
All the more important to remember: the long term purchasing power of this money also will diminish because of inflation.
|Can Take Moderate Risk||This category of investor is not perturbed to see their investments fluctuate in value to some extent in tune with the broader market such as the S&P 500.
These investors will need to focus on building a diversified long term portfolio made up of ETFS and Stocks and here is a roadmap from our perspective:
|Can Take High Risk||This category of investor is very aggressive and is not affected at all when their investments fluctuate in value very sharply.
These kinds of investors are not perturbed by the volatility in the stock market and keep a cool demeanor even if they lose all the money invested.
Investors falling in this category may be interested in short term investing and trading.
In investing,the general principle to always remember is: the risk-reward ratio is linear.
This means: The higher the reward potential for an investment, the higher the risk in that investment. Keeping this in mind, these investors may want to explore these options:
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