December 7, 2021

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4 things that will never change for investors

4 things that will never change for investors

I once watched The Wolf of Wall Street, where DiCaprio played Jordan Belfort very beautifully. And while the movie’s leitmotif was stock fraud and Wall Street corruption in the 1990s, we’re now more interested in what it looked like at the time when a small investor decided to put his money in the financial market. Most likely he had to drive to the stone office to meet the mediator, although many could be agreed upon over the phone. Then he had to fill out certain paperwork to purchase a significantly limited amount of tax-efficient mutual funds or individual stocks. These securities often require an initial purchase fee of 5% to 10%. A check was issued to fund the account, and the whole process took several days to complete all the formalities. If a guy wants to change his money, he has to ask someone on the phone to do it for him. If he wants to add money to his account, he has to fill out more papers again and write another check.

This is how it happened in the United States in the last century. Now let’s take a look at the performance of novice investors today. They download the app to their phone, link their bank accounts by logging into the online portal, and can start trading within a few minutes. Trading is free and allows you to instantly use, buy and sell securities, ETFs, individual stocks, mutual funds, and cryptocurrencies with just one click. Future contributions and investment assignments can be automated without moving a finger. Changes can be made in the wallet by swiping your finger on the phone. If you don’t, the fisherman won’t have to interfere with any of these transactions.

The investment environment has changed in many ways over the past four years. Investors have more investment opportunities, entry barriers to investing in markets have disappeared, fees have decreased, and more tax-efficient products and facilities have appeared than ever before. And we can all use the supercomputers we carry in our pockets to manage our investments. It has never been better with an individual investor.

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But while lower fees and easier access to the markets are undoubtedly a great leap forward for retail investors, some challenges should not be forgotten.

Nowadays, investment opportunities seem endless. You can buy and sell stocks, bonds, options, ETFs, mutual funds, cryptocurrencies, NFTs, artwork, wine, real estate, startups, and more. It’s what he knows where to start, if you’re just getting started. In addition, the fact that you can now trade using your smartphone makes investing more tempting to constantly check your account. However, academic research has shown that the more you trade, the worse your performance.

As technology continues to improve, these challenges will only increase in scale and scale. So how should new investors think about how to keep pace with this ever-changing region?

Amazon CEO Jeff Bezos once said that they often ask him a question: Will it change in the next ten years? But they never asked him: “Will it change in the next ten years?”

4 things

No one knows exactly what new investors will follow. Trying to predict the future is a certain foolishness. If we use Jeff Bezos’ words, new investors are more likely to succeed in the markets if they focus on no change.

Here are some principles of successful investing that will not change in the coming years:

Risks and rewards are interrelated
If there is one consistent rule of thumb for investing in the financial markets, it is that returns above inflation require you to take some risk. There are no guarantees regarding the rate of return, but you cannot expect to mix your money if you are not willing to take the risk. With generations of low interest rates, this was no more the case today.

For young investors, this means that the outright accumulation of risky assets can sometimes turn into significant bone loss. You will be willing to incur short-term losses in order to make big profits from a long-term perspective. If you can’t with some volatility, don’t expect your money to be too big.

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Markets are not always in a developing stage
The US stock market bottomed due to the collapse caused by the pandemic at the end of March 2020. From this point on, the market moved mainly in one direction, upwards. From March 23, 2020 to the end of August 2021, the S&P 500 rose more than 100%. Several individual companies have been to the fore several times. You don’t have to be a genius to be able to make money in such an environment, so it is important that you never miss the market intelligence. Almost a limitation, in which you put your money last year, recorded extraordinary profits in a short period of time. New investors need to understand that this will not always be so easy. Yes, the market tends to go higher from a long-term perspective, but in the short term it can be very short term.

In fact, if we look at every calendar year since 1928, it will show us the average maximum decline from the peak in a given year of -16.5%. In more than three out of every five years, there has been a double-digit recession. For the fourth year in a row, the US stock market has fallen 20% or more. Earnings are always more fun, but you have to go to the stock market with the fact that it does not always move in one direction.

The market downturn is good news for young people
Risk can mean different things to different investors depending on where they are in the investor’s lifecycle. If you are retired and do not have a regular income, the bear market is a sea of ​​fear. You don’t have any future savings to take advantage of falling markets. You don’t have much time for acacia when it comes to a potentially long drop. And you don’t want to be in a position to sell your shares when the market goes down so you can finance your life. For these reasons, many retirees are diversifying in a broader sense so that the portfolio covers safer asset classes, such as bonds and cash, in order to protect them during these periods of market turmoil.

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4 things

Young people are at the far end of the risk spectrum. Young people who regularly contribute money to the stock market should hope and pray for a regular drop, when they can buy for less, get higher returns and better prices. When you start, your greatest assets are time and human capital (the ability to earn in the future). Prei Bear Market is never fun when your money is in the market, but only then can you buy it at sale prices. And if you’re a fisherman who started in the markets in your 20s or 30s, you should expect to see market failures many times in your life. Get used to it and be prepared to buy, when others are going in the opposite direction.

Saving is your best investment
Devising business strategies and keeping track of what is happening in the markets will always be more exciting, but personal finances will have a much greater impact on most young people. It doesn’t matter how smart or smart you are when it comes to the markets, if you don’t save money regularly. You may have ambitions to be another investment icon, but even the smartest investor in the world can’t do that if he lacks the capital to spread it. The best investment you can make from a young age is to dedicate a little time and effort to better understand the importance of making money wisely, regular savings, and saving the broken interest so that you can start that long hard run.