Sunday, November 13, 2011

What To Invest?

Whenever I tell people I am involving in investment. The most question that I received will be: "what are you investing?"
There are basically a few types of investment in the market to be identify and each of them will be different set of risk and reward.

If you are telling a professional trader to buy unit trust, they will chase you away. Reason? They do what the unit trust fund manager does and why will he want to pay other people to do it? And if he has less confident in what he does, I think he should just quit.

So for people that has very little financial knowledge, unit trust seems to be a good choice since you have professional to help monitor your investment. But.. This is just not applicable anymore. How many people you know that lose money by putting their money in unit trust? Might be a lot. The people that help you invest may have a different set of objective than you do and you are basically putting your money with a funds that yourself probably for understand. People buy unit trust just like how people buy insurance - because their friends asked them to do so.

Buying unit trust can bring you more rewards compared to putting your money in fixed deposits and it only required a very minimum capital. That's definitely a plus point but I have to advice those that out their money in unit trust to understand what they are investing.

Secondly, you can also trade in a more liquid market such as stocks, bonds, forex. Or derivative market such as futures, options.

These market are risky to enter if you have zero knowledge especially if you leverage a lot.

For those who has less time, you maybe considering value investing. (Like how warren buffet does it). Look for a very good foundation company and purchase the shares of the company having confident that it will generate more values overtime. But this requires some fundamental knowledge of how to select a good company. From the company products, the company profit, revenue, expenses, cash flow, debt, brand value to determine how good is a company. But value investing requires a very long time to realized the value depending on how the market is doing during that time.

Forex is simply to find an opportunity to see if there are any arbitrage opportunity or under/over valued currency where you can buy / sell to make a profit. Currency traded in pairs. For you to purchase 1 currency you need to sell another currency. So when you buy US dollar against Japanese yen you are buying US dollar and selling Japanese yen. There are many forex brokers out there allowing you to speculate in short time frame on forex market but it requires a lot of knowledge to be able to success in this instrument.

Bonds is another interesting investment. Bond is safer in nature because what you do is simply lending your money to a company who issue you bond. The bond shows you a face value and a maturity date. When you are at the maturity date, you can claim from the bond issuer Te face value of the bond. But there are still risk to it, what if the company fails? What of they can't pay you back what they suppose to pay you?

If you are not very familiar with the instrument above, I don't even want to go into derivative as it requires more knowledge to understand and master.

Don't ever goes into trading/ investing these instrument before you gain the necessary knowledge.

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