Financial Independence: How do I build wealth and get rich?

14 minutes to read

A happy woman smiles in the background while holding a fan of money in the foreground. Build wealth and get rich.

Can I gain financial independence? How do I build wealth and get rich? These are questions that many people could potentially ask themselves at any stage in their lives. Unfortunately, it is not always possible to find a concrete answer to this that would apply to everyone in most cases. It’s hard to give a straight answer because there is no quick fix, and it isn’t enough to just dream of becoming a millionaire; there is a lot you may need to do to achieve financial independence.

In other words, it’s never too late to start building wealth, nor is it ever too late to start gaining your financial independence. However, we can’t escape the fact that you will have more time and more potential opportunities to build wealth and get rich if you’re from a younger demographic. Regardless of your age, though, the sooner you start to make changes, the sooner you will see results in your life.

Did you know?

The majority of lottery winners will, quite often, return to the same financial level that they were at before they won their jackpot prize.

This is largely to do with the fact that most people don’t have the knowledge that is necessary to keep and grow personal capital.

So, How do I build wealth and get rich?

1. Adapt your mentality

The first step to wealth is to change your way of thinking. If you do not have the right mentality, achieving your financial goals will be made that but m9re difficult for you.

If you find you look for different reasons for someone else’s success, yet you are always trying to find reasons for why you don’t have money, you will have a long way to go until you achieve the levelled mentality that is needed.

One of the biggest resources that any one of us can use to further ourselves in this field is reading books, especially those that focus on self-improvement and write about financial success.

Best Financial Books

These books are fairly inexpensive, no matter which way you look at it and they will tell you about different practices that will help you start working towards financial independence as well as how to achieve the ideal mindset for wealth building.

1 – Rich Dad Poor Dad, by Robert T. Kiyosaki

(Available on Kindle, Audiobook, paperback and MP3 CD)

2 – Think and Grow Rich, Original 1937 Edition, by Napoleon Hill

(Available on Kindle, Audiobook, Hardcover, Paperback and MP3 CD)

3 – The Intelligent Investor, by Benjamin Graham

(Available on Kindle, Audiobook, paperback and MP3 CD)

4 – The Richest Man in Babylon, by George S Clason

(Available on Audiobook and Paperback)

5 – The Total Money Makeover: A Proven Plan for Financial Fitness, by Dave Ramsey and Thomas Nelson

(Available on Kindle, Audiobook, Hardcover and Paperback)

6 – The Psychology of Money, by Morgan Housel, narrated by Chris Hill

(Available on Kindle, Audiobook, Hardcover and Paperback)

By reading these books you can learn many things, like how to get rid of debts, earn a passive income, and even how to better put away the money that you make.

2. Invest in yourself

This point is more of a continuation of our previous point. Investing in yourself requires you to spend time, and some money, on learning and self-improvement.

What does this involve?

Reading
Completing courses
Refining your skills
Building connections

Many people underestimate the importance of getting to know each other and building professional relationships. However, it should be more well-known that people with wealth are almost certainly guaranteed to have important business contacts now that the individual gained by building extremely valuable relationships during the early stages of their mission to build wealth and get rich.

The more skilled and experienced you are, the greater the opportunities you will have.

Your first goal in wealth building should be to strive for a wage raise or find a new job that you want to do and can earn more money in whilst being able to do something that you’re genuinely passionate about doing. Ensuring you are in a job role that you can be proud of and earns you more income will prove to be a solid starting point for you. From this, you can create a more robust financial basis for yourself, bringing your financial independence one step closer.

“The most important investment is to invest as much as possible in yourself.”

– Warren Buffett

3. Save

As we hinted at, at the beginning of the article, there is no such thing as an A-Z guide to getting rich. Still, there are good habits that you could consider that will undoubtedly significantly contribute to your future financial success.

Saving should be considered a main priority if you are looking to build wealth as, without doing it even a little a bit, it is almost impossible to begin to make a more considerable fortune.

You can start saving with small steps:

Spend within your means and never more than what you expect to earn within any relevant time period.

Set a portion of your income aside at the end of each month. If your pay schedule differs from the changeover of the month, do this when the pay cycle refreshes, and you receive your wage. A good level would be around 10% of each wage packet you receive, but only ever save what you can afford to.

Investing the money you save is a wise way to store your savings as, if the market is in your favour, it will be working for you instead of lying stagnant in an account. In addition, some stocks can even earn you dividends, meaning you will receive an extra return as a shareholder from the company at a specified time.

Although, because of market volatility and some unpredictability, f you’re inexperienced here, don’t take on too much and revisit this later in your journey, as at least some market knowledge and a lot of due diligence are necessary.

Properly managing your finances is the first step to financial independence. If you regularly spend on unnecessary things and end up being left with very little at the end of your pay period, you probably wouldn’t be able to keep your wealth growing progressively.

4. Create a budget

Creating a budget to summarise your income and outgoings can be very helpful if you struggle to see where you can start to build wealth.

Keeping track of your expenses and calculating how much you can comfortably spend each month may be more straightforward. You can easily do this with the help of a phone app or even computer programs such as Microsoft Excel.

You may be surprised at how you spend most of your money.

At the beginning of each pay period, determine how much money you will need in different areas of your life (bills, other direct debits, etc.) and set aside an affordable amount of money for savings every month, or pay cycle. This amount will form the basis for the construction of wealth.

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Budgeting in 3 simple steps

Step 1 – Assess your income.

You can’t skip this step, and you must determine precisely how much revenue you have each month.

Step 2 – Determine your expenses.

Create different categories relevant to the different types of spending that you will do in a month, then calculate how much goes towards each category. Classifying outgoings like this will simplify everything to read easily on a page, furthering your ability to determine where you could make changes in your spending.

Step 3 – Calculate the amount you can save.

Suppose you cannot yet pledge a set percentage of your income to savings every pay period. Any money you don’t need to pay mandatory expenses should be put away – still ensure you will have money available to you in an emergency.

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5. Create a plan

If you want to build wealth, you will need a plan and this isn’t just made up of the previously mentioned budget; it will help you a lot to achieve your goal.

With the help of a plan, you can think more specifically about the smaller details and, therefore, more carefully map out the necessary steps you will have to take during your journey.

Your budget and the steps in your plan will undoubtedly adapt and change over time, but if you have a visualised plan, you’ll have a better chance of reaching the goals, further motivating you whilst you work towards the end goal every day.

6. Consolidate any debts

It is important to get rid of all debt as soon as possible if you have any. In addition, if you have previously taken out a personal loan, home loan or other product, it is worth prepaying them as early as you can.

When creating a budget, you also need to consider loans as, until consolidated, they will be an ongoing cost.

If you don’t pay the instalments on time, you will lose even more money due to the rising loan caused by interest. So spend as little as possible and spend as much money as possible to repay the loan.

Debt settlement loan

A debt settlement loan can help you, especially if you need to pay off several loans simultaneously.

With the help of the current debt settlement loans, you can redeem your old high-interest loans and repay the amount at a more favourable interest rate.

We spoke a little more in-depth about the methods that you can use to settle debts, in our article here.

7. Surround yourself with the right people

If you want to be successful, it is important to invest time in quality friends who have goals like you.

It is also necessary to be able to talk to these people about things that will help you move forward, energise you with positive energy and give you strength in difficult times.

If you have friends who encourage you, this can be a great help in difficult moments and difficult decisions.

“Great people talk about ideas, ordinary people talk about things, and small people talk about other people.”

~ Eleanor Roosevelt

8. Invest in shares and real estate

Passive income is one of the best ways to make money. You would find that, if you asked them, almost every wealthy person would likely have investments that make them money, even while they are sleeping.

If your only income is through working, you essentially have to sell your time to make ends meet.

You don’t need a lot to start and could begin investing with very low capital amounts today. If you already have a significant amount of money and just want to build on it, you can even invest in real estate when the market is in a period of stability.

Best investments?

There are many forms of investment, so before making a choice, it would be a good idea to compare the yield and risk levels of different methods before choosing.

Financial Independence

9. Start your own business

Setting up a business of your own can sometimes be highly profitable. Although success here relies on several factors that you will need to consider – for example, are you offering people a valuable and useful product or service?

It is not easy to create a successful business, but if you are willing to put in enough time and work and can cover any initial investments you may need to make, you can certainly earn a great income level over time. It is a sure thing that hard work will bear fruit here.

Don’t put all of your eggs in one basket

In the beginning stages of building your business up, if possible, only work for it in your spare time and definitely only leave your current job if your company reaches a stage where it can easily provide you with a secure livelihood.

10. Take risks

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It is important to preface this point by saying always pay due diligence and be sure to always stay within your financial means.

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Don’t be too afraid to take risks. If you always air on the side of caution, at least too much anyway, you will find it is a difficult way to build wealth and get rich.

Those who live too comfortably and find it difficult to do anything outside of their comfort zone will not try new things, even those that have the potential to put them in a better position.

People who know how to build wealth and get rich will dare to take risks, try new things, and learn from the mistakes they have made.

Do you want to invest, but have you always been afraid to make the wrong decision? The internet is full of free courses to help you get started on the path of investing. It is important to not feel like spending on paid learning materials is a bad thing or like it will set you back; it won’t: these resources often contain information that will serve a much higher value for you in the future.

11. Think about variety

Even though risks can prove to be a good move and have a good payoff, it’s not the best decision to just focus on only one area.

Although over-diversification can be a bad thing, don’t just strive to be good at one thing, try to improve in as many ways as possible.

If you focus on just one thing and ignore everything else, you can potentially lose out on a lot of useful information and opportunities. This could cause a lot of harm to you and your potential finances in the long run.

For example, say you did set up a business – you invested all of your money into it and it became very successful. What if, after a while, your circumstances change and you no longer have time to serve the business but don’t want to employ staff? this could cause you to have to give the business up and you would financially have to start building all over again.

However, if you have gotten to a stage in your mission to build wealth that means you can confidently accept any potential losses, investing some of your money in real estate, stocks and shares, means that your risk exposure would be divided. This means that the successes you have would compensate for any loss you may experience in another area of your portfolio.

Our article here looks deeper into the subject of Diversification. It talks about topics such as why it is a good practice and the different types of available investment products. Also, it discusses the subject of over-diversification and the adverse effects this has on a portfolio.

Create more sources of income and always have an asset that will passively generate money for you – this should be the main goal as a successful passive income will take you leaps ahead.

Find new opportunities and try out more new things to try and further yourself. This increases your chances to get rich and build wealth successfully.

12. Don’t procrastinate

If you postpone everything, you will never achieve your goals or find it more difficult than you should. We understand it is easy to think you have plenty of time left or you will do a particular task “tomorrow”.

This way of thinking can be seen a lot in younger individuals. You think you will have plenty of time to achieve your goals.

Unfortunately, this mindset will help you to get nowhere fast. You may realise in 10 years that if you had taken that first step today, you would have been miles ahead from where you ended up and much closer to where you want to be at that stage.

Conclusion

In summary, wealth can only be achieved through developing useful habits and attributing yourself to proper, invested work. Try to spend less from month to month and, once you would able to financially recover from any potential loss without too much difficulty, invest a large amount of your savings to increase your money’s value.

If you know your financial goals already, in order to have more money later, it is always best to take the first steps today rather than waiting and putting it off until later.

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How to manage your finances like the top 1% for success

11 minutes to read

Have you ever wondered how rich people have come to have more money than most?

Commonly it is believed that those who are more financially well-off either just struck lucky, gained fortune from wealthy families, or somehow made their fortunes fraudulently.

This is most usually a massive misconception and those who believe this have to change a lot in order to be able to make a great fortune for themselves.

Most rich people have worked very hard to achieve their financial goals. Over time, these individuals have learned how to manage money and know what needs to be done to ensure that their passive income – if they have one – continues to increase their wealth.

In this article we will overview how to manage your finances

Table of Contents

1. 1. Tracking Costs and Creating a Budget

2. 2. Set up an Emergency Fund

3. 3. Repay Your High-interest Loans

4. 4. Invest in Yourself

5. 5. Invest in Shares and Real Estate

6. Act!

Money is an integral part of our lives because it affects all areas of it. If you don’t have much money, then you may find that at least one of the following applies to you:

You have to work very hard in order to make a living.
You don’t have any disposable income and so can’t spend on your own needs.
You don’t have the opportunity to travel abroad and see the world.
You find it difficult to create the right environment for your family.

How much of a relief would it be if you were in a position were all of these things could be done at any given moment.

There is no recipe for wealth

Everyone gets rich in different ways, this is because each method will suit different people differently, but rich people have many similar habits and qualities.

It is a fair suggestion to say that the top 1% share the same view of the benefits and importance of money and that these people live almost identically when you take most of their spending habits into account.

1. Tracking Costs and Creating a Budget

How can you change something you aren’t aware of?

You can only create a better financial situation for yourself if you know exactly where your money is going.

Richer people may have more of a healthy level of wealth, but they know exactly how much they pay, where they spent it, and on what.

Most people don’t pay much attention to a budget and in fact, most of us only know how much we get paid in a month and manage our finances according to that entire amount until we get the next payment, when we do the same thong all over again.

That’s not how successful people manage their money.

For the next two months, track your expenses, as well as your incomes.

You can do this with the help of a piece of paper, but then you will have a better chance of forgetting certain things. The easiest and most effective way to track your spending is to use a phone app that will track both incomes and outgoings for you. Note, this will require you to input data as you go.

Some useful income/expense tracking apps include:

By following these steps, you can also increase your savings:

Tracking costs

Step 1

Record all expenses and incomes

As well as noting what incomes you have within any given month, also keep track of all expenses that take place in that month, all the way down to the last penny/dime. This ensures that all of your money is accounted for and you know where it is all going, giving you a much clearer bigger picture.

Step 2

Assess each month

At the end of the month, work out what you’ve spent most of your income on and identify if and were changes can be made to your spending habits. This is a crucial part of how you will now manage your finances.

Step 3

Don’t buy because of sudden urges

Most people realize that impulse buying greatly increases spending. Despite this realisation, it may not occur to the same individual that, if you only buy what you really need, you can improve your financial situation a lot.

Of course this isn’t to say that you can’t treat yourself every once in a while, but just be sure to keep a handle on unnecessary spending as this can absorb a lot of your income if you aren’t careful.

Step 4

Work out how much you can reasonably save

Once you’ve gone through all of your expenses, you can then compare these figures to your level of income to be more able to determine just how much money you could set aside and invest into more useful purposes each month.

Try to continually work on this so that you can gradually increase it from month to month.

2. Set up an Emergency Fund

Every person with considerable wealth, and even as well as those with any level of disposable income, almost always have an emergency fund that allows them to cover their expenses for at least 3-6 months simply to have just in case their personal circumstances change.

So how do you go about building up this fund?

The answer to this is simply using an appropriate proportion of the money you can now regularly save each month to set up your own emergency fund and to then manage your finances so that you don’t use that money unless you find yourself in a situation when you really need to – for example, if you were to lose your job.

As we had said earlier, if you keep track of your expenses properly you’ll know exactly how much money you spend each month. It is then this figure that will help to determine how much your emergency fund needs to be in order to cover everything you will need it for when the time comes.

Your goal should be to save this amount as soon as possible.

Only use the money you save if you have unexpected, urgent costs. This will protect you from borrowing, which usually is a long-term commitment that may even take years to be paid off.

It can be a lifesaver

For example, when you have your fund mostly set up, should you have a large unexpected expense, you won’t have to make arrangements with your landlord to be able to afford your rent payment and you certainly won’t need to take out a loan.

If you have sufficient reserves for such an expense, you will be able to pay the amount without any problems and no sacrifices are necessary.

3. Repay your high-interest loans

Whatever credit you have, it is worth consolidating where possible and getting it paid off as soon as is reasonably possible. If you are paying off a long-term high-interest loan, in some circumstances, it may be worth replacing;

Debt settlement credit is beneficial

With the help of a debt settlement loan with a favorable interest rate, you can pay off your current loan and replace it with a cheaper, more affordable loan.

A debt settlement loan can be applied for at almost any bank and operates on similar terms as a personal loan.

Before entering any contract it is important to pay your due diligence, but you should certainly find out more about debt settlement loans before deciding to use one to try and help your personal situation, if you don’t then you may make it even harder for you to manage your finances, but as long as you listen to advice and don’t rush into anything, you should be perfectly fine.

If you do not want to apply for a debt settlement loan, you can also use one of the following methods to help make repaying your loan easier:

Avalanche method

This is usually the best way to repay your debt – especially when you have multiple loans – as it will cause the least amount of extra cost.

The essence of this method is to settle your loans based on the level of interest they carry. Put simply, when following this method loans with the highest APR are the first to be paid off.

Further to this, once you have then managed to pay this higher rate loan off, continue by paying off the second-highest until, eventually, you only have to pay off the last loan which has the lowest interest rate.

Snowball method

This method is similar to the avalanche method in the way that you pay your debts in a predetermined order, only here you will first pay off the loan that equates to the smallest amount of credit. This will certainly be easier to sort out, and so you should see the results of your work sooner.

As we have already said, in the snowball method, you do not take into account interest, only the total amount of credit to be repaid.

The advantage is that you will feel the success and therefore it will be easier to pay off the next loan.

The disadvantage of this method is that you will pay more on interest than in the case of the avalanche method.

4. Invest in yourself

Once you’ve set up your emergency fund, paid off your debts, you should invest in yourself and gain knowledge which will, in turn, help you to make more money looking forward.

What is considered to be self-improvement?

Reading new, informative books
Investing in learning a new skill (i.e. completing a course)
Starting your own business
If you already have your own business, you can invest in it to improve and develop it further

If you’ve done everything you can to create a better financial situation for yourself, for example, you now have savings, can effectively control your money, and money doesn’t dictate how you live, then you can now manage your finances well, and it’s time to consider the different ways to bring in new forms of income and start earning more.

You can’t completely create a better financial situation for yourself if you don’t take the opportunity to learn new, important ways to make money.

The possible result of having an open mind to these methods could be:

A raise in pay
A promotion
Movement into better, more well-suited job roles
Being able to start your own business

If you have money set aside and get rid of loans as we previously explained, you could potentially take on more risk, which is usually essential to successfully gaining more money.

5. Invest in Shares and Real Estate

Starting your own business is not an easy task: it takes a lot of perseverance to get started and for a company to succeed a lot of time, effort and general work is needed to be put into it. This also includes developing a portfolio of assets and, if you work hard enough, your business can be your most profitable asset.

If you are a person that aspires to be able to eventually live a quiet life whilst knowing that you have a secure job: there is a way to earn more income.

The most affluent people invest their wealth in different areas and diversify their investment portfolios. The most popular investments are usually stocks and real estate.

Investing safely

Before you invest, it’s good to identify the area that piques your interest the most.

It is important to note that, before you choose the area you are wanting to invest in, examine the different areas and compare their level of risk. Find an investment that suits you both in terms of capital and risk.

Remember, long-term investing is usually safer and more rewarding. For novice investors, it is not recommended to think in the short term.

The best way to manage your finances? Act!

These steps can seem very difficult, especially if your personal situation means you are currently still struggling with debt.

If you follow the aforementioned steps and feel like you aren’t getting anywhere fast, don’t be too concerned and carry on accordingly. It can sometimes take years for most people to turn their personal situation around and get to the point where they can begin to think about investing.

Try to complete the steps in sequence and begin developing the right habits. It is these appropriate spending and accounting habits that can save you a lot of money in the long run.

Synopsis

The top 1% live by strict rules and manage their money so that every penny/cent has a purpose

Investing is a very important part of collating wealth, so it is worth starting to manage your finances as soon as you can so that you can then begin putting your money to actual constructive use as soon as possible.

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BINANCE – A CRYPTO EXCHANGE ANALYSIS – Binance Review

8 minutes to read

Binance Review, Binance is a cryptocurrency exchange that was founded in Hong Kong in 2017, and has rapidly grown into the world’s largest crypto exchange based on trading volume. The initial growth and popularity of the platform were so impressive that they had to temporarily suspend registrations in January 2018 so that they could keep up with demand. Today, it offers customers a highly well-established range of more than 40+ fiat currencies and 300+ cryptocurrencies with no deposit fees and highly competitive trading fees (up to 0.1%), all of this applies worldwide – where applicable.

The most important features and benefits of Binance

It has so many features that make it one of the most popular crypto exchanges in the world. Here’s a list of Binance’s best features:

Extremely low 0.1% fees, with discounts if you pay with BNB;
More than 300+ different cryptocurrencies for purchase, sale or trade;
Android and iOS mobile apps are available;
Advanced, classic and basic trading platforms to suit your needs
Do more with Binance Earn – increase your crypto;
Binance Visa Card – spend your cryptos anywhere with a card
P2P exchange – trade directly with others on your own terms
Binance Loan allows users to borrow crypto
NFT marketplace for buying and selling NFTs
Margin trading with leverage of up to 10x
Futures and derivatives trading

BINANCE REGISTRATION

What services does Binance offer?

If you’ve done some research on the best crypto exchanges, you’ve probably found that there are many options, making it difficult to decide which exchange platform to choose. With this in mind, we’ll help you work out the suitability of Binance by explaining the best services it has to offer to see if this is the right exchange for you.

More than 300+ different cryptocurrency purchases, sales or trades

Binance offers over 300+ different cryptocurrencies, making it one of the most comprehensive offerings in the world. As the world’s largest cryptocurrency exchange based on trading volume, you know liquidity will be high, so you will be able to buy and sell (almost)any coin on their platform with ease. The native token here is Binance Coin (BNB).

Below are the latest figures:

Android and iOS mobile apps

Binance has an excellent application, making everything easy for beginners. The ease that this platform affords its users also suits advanced traders by simplifying processes. Within their corresponding app, there are two versions that you can switch between at the touch of a button, these are as follows:

There is Binance Lite, which is excellent for beginners, and Binance Pro, which gives you access to many advanced features and trading tools. Further to this, according to the Google Play store, the app has more than 10 million downloads, with a high user rating of 3.7/5 stars – This rating is based on 617,000 user reviews.

Advanced, classic and basic trading platforms

Binance serves customers of all levels, from complete beginners to experienced day traders in the crypto investing world. If you want the easiest way to buy crypto, you only need to select the basic “Convert” option, which creates a straightforward interface.

Those who are more comfortable with the traditional market interface can choose the Classic method of buying crypto, which has much more information than the basic version. Experienced traders who want full access to all trading instruments can choose the Advanced option under the Trade tab.

Use Binance Earn to grow your crypto portfolio

Binance offers users various options to increase their crypto while leaving it on the stock exchange. If you plan to hodl (withhold/hold onto) your crypto, this is a potential investment opportunity. Instead of it lying dormant as available funds in your portfolio, you can work with it. The following sections below, explain the different bidding options.

Binance Visa Card

Binance works with Visa to offer a card that lets you spend your crypto with 60 million merchants worldwide. In addition, the card is free, has no administration or processing fees, and you can even get up to 8% cash-back on eligible purchases! This is undoubtedly a significant step in the right direction to make crypto a mainstream payment method.

P2P Replacement

Binance offers a peer-to-peer exchange that allows users to trade cryptocurrency directly with each other between their portfolios, on their own terms – in virtually any country!

Binance Credit

Anyone registered as a Binance user can access a loan if they wish to take one out on the platform. There are several credit conditions that you can choose from when borrowing; It is possible to make an early repayment and pay only for borrowed hours. The interest rate is calculated at 0.001667% (0.04%/day) per hour.

NFT Marketplace

NFTs have taken the crypto world by storm and are continuously gaining popularity. Binance has seized the opportunity to take part in the movement. Binance has its own NFT marketplace, where NFTs can be minted, bought and sold.

Margin trading with leverage of up to 10x

Margin trading is only available for a select few trading pairs; further to this, with some trading pairs, users can acquire leverage as high as 10x. Cross margin trading can be hazardous as users risk their entire account, while isolated margin trading only poses a risk to that trading pair.

Futures and Derivatives Trading

A relatively new feature is Binance Futures, which allows users to speculate on the price of Bitcoin and altcoins such as Ethereum, Ripple, Litecoin, Bitcoin Cash and others. When trading futures, users do not actually buy or sell cryptocurrencies, but only take advantage of the price rise/fall to make money.

The futures interface is very similar to the trading platform itself. The only difference is features, such as the ability to view open positions and features that allow traders to control leverage. Binance Futures fees are up 0.04% for each trade. Fees are lower for traders with a huge monthly trading volume or, subsequently, if their trades often increase liquidity in the order book before they are executed.

Binance awards

It has extremely low fees, and it is in fact possible for them to be reduced further.

Deposit fees

If you put cryptocurrency in Binance, there is a zero fee. If you deposit fiat currency into Binance, the fee will vary depending on how you deposit and the currency. For example, if you pay Australian dollars (AUD) using PayID/OSKO, it’s free. However, if you deposit Hong Kong dollars (HKD) by credit card, the fee is 3.50%.

Payment Fees

The withdrawal of cryptocurrency from the Binance account comes with a flat fee that covers the transaction costs of transferring crypto to the wallet. The fee varies depending on each coin. In the case of fiat currency withdrawals, the fee varies depending on the withdrawal method and currency. For example, taking the Australian dollar (AUD) by bank transfer is free. Paying the pound sterling (GBP) by credit card comes with a 1% fee.

Transaction Fees

Fees for spot trading (buying and selling cryptos) start at a low 0.1% and you can get a 25% discount if you pay the fees with Binance’s own coin (BNB). This means that you only pay 0.075% for each trade!

Trading Fees Compared to Other Popular Exchanges

Binance – 0.075%

KuCoin – 0.10%

Coinbase – 4.5%

Bybit – 0.10%

If you’re a large-scale trader and hold a lot of BNB tokens, you can reduce fees even further, with the lowest fees with a 0.015% maker fee and a 0.03% taker fee, including a 25% discount using BNB.

Binance security

As a platform, Binance is a secure cryptocurrency exchange that keeps most of its digital assets offline in cold storage and also gives its users tips on ways to increase security. In line with their strong security ethics, there are account settings to enable 2FA (two-factor authentication), the whitelisting of devices, payment address management, the enablement of anti-phishing codes, and even U2F (universal factor 2 authentication) – which requires physical access to hardware to access the account.

Despite all of these efforts to keep the exchange safe in 2019 Binance fell victim to a cybersecurity breach and lost more than $40 million worth of Bitcoin. However, they reacted commendably to the situation; The resulting losses were fully subsidised and so users did not suffer any actual losses. Four months after the incident, they received ISO 27001 certification after passing an audit of information security management. This shows how committed Binance actually are to maintaining a secure platform for all customers. Further to this, Binance is constantly investing in ways to improve their cybersecurity protection.

Summary

In the world of cryptocurrency, Binance is certainly a big and popular name, this is no accident. Based on trading volume, it is the largest crypto exchange with competitive fees and a platform designed for both novice investors and experienced traders. With over 300 different coin offerings and extra features like bets, margin trading, futures, and even an NFT marketplace, it’s an excellent platform to rely on for your blockchain activities.

Don’t have an account of your own? If you want to open one follow the link to get started:

Binance registration >>

High Inflation! How should we invest if inflation remains high?

3 minutes to read

How should we invest if inflation remains high?

Those who expect persistently high inflation should think about inflation-tracking retail government securities centred around the US Dollar and the Euro. But, on the other hand, with the right timing, commodity investment funds and stocks also have the potential to perform well.

Inflation is likely to be only temporarily close to 6-7% in the US. From the second half of 2022, the consumer price index may gradually return to close to 2-3 percent, based on expectations.

If it is predicted that there will be higher inflation on more of a permanent basis, you may want to choose the following forms of savings.

Raw materials

If we turn to the universe of risky investments, commodity investment funds can perform well in a high inflation environment.

In the post-coronavirus period, many governments around the world are invigorating with improved infrastructure measures. Meanwhile, the supply side faces a capacity shortage and supply chains are faltering. After the closures, a significant demand hit the construction industry worldwide, but trade and geopolitical tensions also pushed up the price of raw materials.

Moreover, the supply chain is relatively inflexible. For example, it takes a good two years to create a modern sawmill, while opening a new mine may take up to a decade.

Through their bond-buying and liquidity-enhancing programs, central banks have injected huge sums into the banking system and economy on the demand side of things. This money is present as a demand, raising the price of commodities. This links to the increasing number of wage increases.

This environment has led to significant price increases in the raw material markets.

After the prices of many raw materials have doubled in recent times, the question is whether or not it’s worth entering trades or investments after such a significant increase and buying, for example, a commodity fund.

Suppose China could avoid a slump in its real estate market and a significant slowdown in its economy. In that case, commodity price increases may continue for some time to come, although the pace is likely to moderate. The significant price increases may be behind us.

Domestic, German and U.S. stock markets are at historic highs. Stocks have traditionally performed well in higher inflation environments. If inflation is too high, it can be harmful. In this case, central banks will have to make significant cuts.

Higher inflation is particularly concerning for the U.S. Federal Reserve (FED).

In the United States, the rate of economic deterioration rose to a 13-year high of 5.4 percent. One-year inflation expectations jumped to 5 percent, and 3-year inflation expectations, which better capture longer trends, jumped to 4 percent overseas.

As a result, the FED could phase out its bond-buying program entirely by the middle of the year and even begin a cycle of rate hikes. However, this can trigger a negative correction in equity markets.

In light of this, it is advisable to buy shares in the form of several positions (known as dollar-cost-averaging), with more of a long-term view. This technique can reduce the risk at the time of purchase.

If a 10-15% correction were to develop in the equity markets, it could be another possible point of entry.

In this case, the extreme optimism in the markets could be tempered, investors’ cash holdings could recharge, while the pricing of equity markets would also return from the current very high levels.

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Are Small Investments Useful?

11 minutes to read

Small Investments

We often find ourselves giving in to the common misconception that only more significant investments are where the main capital gains are achievable. Yet, against popular belief, even smaller savings are capable of profit-making, and even small investments can become profitable, especially if you do them regularly.

Many people think that there isn’t much to be done with the last bit of spare money leftover from their previous wage each month because, from some people’s perspective, this leftover amount doesn’t really equate to much value. However, considering that regular monthly investment can usually result in quite a nice return, the previously mentioned misconception is not a good outlook to adopt as that leftover money can most definitely go a long way, no matter how small.

As we had mentioned in our in-depth investing guide for beginners, it is now possible to invest with as little as $10 on the eToro platform.

To do this effectively, of course, you need to know which products are worth buying in small quantities on the market. Although, unfortunately, if you want to invest a small amount, you may not have as many opportunities as others.

Investing in eToro

eToro is one of the most popular and chosen online brokers. If you were to read the reviews about the company and get to know the services on the site, before long, you would soon come to realise how good of a platform it really can be!
Find out more about eToro: Here

When should I choose a small investment?

You should at least consider a small investment, if:

You have little savings, and you want to increase them.
You’re a beginner and don’t know the market very well.
You want to begin generating long-term returns
You want to try a new product
You don’t want the risk exposure associated with larger amounts of capital.

Benefits of small investment

You’re only risking a smaller amount of capital.
It helps give an understanding of how the market works.
It is easy to diversify with smaller holdings.
You can choose from flexible products.
With regular investment, your portfolio can achieve good returns.
There are leveraged products available.

Disadvantages of small investment

Patience is needed when it comes to developing the desired level of holdings.
Fewer options are available.
The risk is the same.
In the short term, potential yield production may be limited.

Minimum capital: $10 to $10,000

Possible profit: very high

Time horizon: 5+ years

Competence: very high

Risk: very high

Stocks are potentially one of the most popular investments. Thanks to the variety of shares, everyone has the ability to find a product that is perfectly suited to them and their portfolio types. In addition, since we are talking about an investment type that has high diversity potential, you can often find shares that can quite oftenly turn out to be a profitable choice even with very little capital.

Despite the previous point, nobody can forget that stocks are relatively risky. If you want to invest a small amount, it certainly means that you don’t have much savings. With this in mind, you should be especially careful when it comes to stocks because, with a wrong decision, the investor can easily lose even that small amount.

If you want to buy shares, we recommend that you think long-term and preferably not rely on the shares of just one company. When you spread your investments, you are in turn exercising risk management which will actually protect your capital investment should something happen to that one particular company that you would have originally placed all of your money in. This, in essence, means you won’t lose everything in one go.

Bank deposits

Minimum capital: $1,000 to $10,000

Possible profit: low

Time horizon: 0-1 year

Savvy: low

Risk: low

A bank deposit is generally a safe investment, so it’s recommended especially for those who do not want to put too much risk exposure on their money.

Some may not realise this, but you will be required to have a bank account to deposit. The amount paid will be the bank’s property for a while, but, in return, you will receive interest from it. At the end of the term, you will receive the amount and the interest paid on it.

It is worth noting that, in the case of a bank deposit, we haven’t addressed and talked about is the sometimes high-interest rates. So, for example, you can get a higher return on a share, but you can choose a bank deposit if you want to be sure of reduced risk.

Also, remember that because you have protection when it comes to the deposited amount, you wouldn’t lose your money even in the event of bankruptcy.

Gold

Minimum capital: $1,000 to $10,000

Possible profit: low

Time horizon: 1-5 years

Savvy: low

Risk: low

Gold is an available investment option that has been present in the market for a very long time. It is the most popular investment among precious metals, and most of the time, investors will buy gold for diversification.

Another reason for gold’s popularity is that it can retain its value better than most other securities. An excellent example of this is that shares will decrease in value more than gold in the event of a crisis. Moreover, the value of gold will likely increase during a crisis; this is because many people will invest a portion of their money in gold as a portfolio safety net.

The value of gold is on the rise in the long run. Since we are talking about a rare and finite amount of precious metals, you can be sure that gold will retain it’s value in the future.

If you’re looking for a small amount of investment, gold can be a great way to counter inflation.

Bitcoin

Minimum capital: $1,000 to $10,000

Possible profit: very high

Time horizon: 1+ months

Competence: very high

Risk: very high

Bitcoin could easily be the most popular and well-known cryptocurrency. Cryptocurrencies are internet currencies that operate without a bank or other centralised body. Instead, blockchain technology allows transactions to take place exclusively between users.

Originally Bitcoin was created to keep people safe and allow them to store their money independently of any bank. In our current society, websites and big-name businesses are increasingly supportive of Bitcoin payments, although the future of cryptocurrencies remains in question.

For sure, Bitcoin is currently a very trendy product, and most people see it as an investment. However, the price can be very unstable, which is caused by market volatility, and this is why you can quickly lose your money.

Bitcoin is better recommended to more experienced investors, but – on the other hand – you don’t necessarily have much to lose if you only want to invest in small amounts and can then gain valuable market experience and knowledge at the same time. The yield on leveraged products is likely the best to use to compare to Bitcoin’s yield.

P2P loans

Minimum capital: $1,000 to $10,000

Possible profit: high

Time horizon: 1-5 years

Savvy: low

Risk: very high

Peer-to-peer loans can be a good source of income for the lender. If you want to invest, you can give credit to people who need it.

Since there is a demand for such loans, smaller amounts are utilised equally to more significant amounts. This point is important because banks usually don’t deal with options such as these less significant amounts. Moreover, when it comes to P2P loans, the borrower will pay interest on the money lent, so, like a bank deposit, you will earn a guaranteed return.

The borrower will also benefit, as they have access to a loan with a lower interest rate than they would be able to source from any bank.

Such lending isrelatively easy to source on most platforms. These sites can easily connect you with the borrowers that suit you.

! Attention !

The use of P2P platforms is prohibited in some regions. Therefore we urge you to DYOR and source the correct information relevant to your specific country orregion. Only if you find that it is not unlawful to do so, should take full advantage of P2P lending.

Commodities

Minimum capital: $1,000 to $10,000

Possible profit: very high

Time horizon: 5-10 years

Competence: very high

Risk: very high

As a term, “Commodity Products” is used to describe raw materials and basic products that are suitable for investment.

These products include:

Agricultural products
Commodities
Metal goods
Livestock goods

There are several ways that you can invest in these products. The, seemingly, obvious solution for some would be to buy and store physical product. Although, because of the sheer required storage space alone, this is far from a favourable or recommended method. Instead of this, in the majority of cases, it is more highly recommended over anything else that investors buy into an ETF (Exchange Traded Fund) that is suited to their portfolio requirements.

Buying ETFs is much more straightforward and a much more obvious choice in the way that investors can implement them on almost any platform. If you are looking for another alternative, you can choose a suitable investment fund instead.

It is important to remember that when buying a product, you need to be thinking with a long-term mindset.

Invest in Yourself

Many people forget that self-improvement is one of the most important things in the world that you can turn your attention to. Often, learning a new skill holds a lot more value than any product you can find on the stock market. If you spend money on improving yourself, you will almost certainly be making the best decision possible.

If you aim to make more money, the easiest way to go about this is to further develop the skills that will better assist you in achieving these goals.

For example, if you want to invest in the stock market, you you may enrol into a course that will advance your knowledge in new investment methods.

Also, it is advisable that you ensure that you give yourself the opportunity to gain enough personal experience traversing the market, as well as market knowledge, to the point that you feel more comfortable and certainly confident in it processes. An example of a platform that accommodates this necessary stage in any investor’s journey, is eToro, it is one of the most popular investment exchange platforms and provides all newly registered users with demo accounts so that they can do just this and gain necessary knowledge and experience before needing to have true risk management skills.

With the amount on the demo account, you can invest without risk, therefore you can experience not only how to properly use the site, and its different features but also to see how the various different products behave.

How do I create an account on eToro? Guide to open an eToro Account

CopyTrading

For many people choose eToro because of its CopyTrading service. CopyTrading allows you to replicate the movements of more experienced investors. Commonly, individuals usually feel safer in their market movements when they have received this kind of assistance from an experienced party.

If you decide to choose CopyTrading, first compare different investors based on their eToro profile. On the site, you will find all the useful information about them that you will need to make a decision, including the recent profit/loss they have made on their portfolio.

Don’t forget the risk!

CopyTrading may be a good decision, but the risk is there with every investment. The functioning of the market cannot always be determined in advance and therefore experienced investors can also occasionally lose money too.

Pay attention to this when investing a small amount

It is worth taking a few tips of advice when it comes to small investments. This includes the following:

Don’t have unrealistic expectations. Since small investments are usually long-term, you will only generate true returns over time.
Don’t forget about the risk. There is also risk involved when you invest a small amount of capital. If you choose the wrong product, you may lose the entire amount of money.
Try to invest and diversify regularly. The more products you invest in, the safer your money will be due to portfolio diversification.

Synopsis

If you are a novice investor, starting by investing with smaller amounts is a wise decision. The market has many possibilities for you to choose from, all you have to do is be sure that the product(s) that you select suits you and your planned portfolio requirements as best as it can.

Remember, small investments also have pitfalls, so if you choose a risky product, it may be worth seeking an expert’s opinion. It is also always important to only risk as much money as you can afford to lose without being overly affected.

Disclaimer:

You make every investment at your own risk. Your money is at risk, and past performance may not be a reliable indicator of future results. You never know if an investment will pay off or not.

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Key Crypto Market Trends for 2022

7 minutes to read

In this article, we use examples of some of the important cryptocurrency milestones of 2021, in order to preface and help explain the key crypto market trends for 2022 that we expect to see great development in. This will also include how cryptocurrency, and the DeFi community as a whole, has already surpassed simply ‘making a mark’ with the wider population and brand marketing.

The volatility of the cryptocurrency market ran high in 2021. The year had begun with a strong rally, which pushed the exchange rate to an all-time high, for some tokens, in the spring. Following this, in May the crypto market collapsed, throughout the summer it then tried to recover. Then, in November, Bitcoin reached a new all-time high. Unfortunately, this then turned around in December when a bear market ensued, despite previous predictions showing that it should have continued to rise.

Despite the decentralized finance (DeFi) sector’s development really picking up pace as early as 2020, adoption and innovation really started to pick up by 2021.

New DeFi applications (DApps) and services have allowed crypto users to begin to use their tokens in many diversified ways, such as taking out loans and earning returns using their coins. Non-Fungible Tokens (NFTs) have swarmed both the online marketplaces that were curated purely for digital art collections, as well as traditional auction houses.

In November, the total crypto market capitalization reached $3 trillion. This is when Bitcoin and Ether reached their peak, which later slipped back to $2.5 trillion in December.

Key trends and forecasts for 2022

High volatility can sometimes make it more difficult to accurately predict crypto prices, but there are clear trends that affect the acceptance of cryptocurrencies and tokens, which in turn will effectually help to determine the direction that the prices will take.

Here are seven key topics that could dominate our cryptocurrency markets in the duration of 2022, building on developments that we had seen in 2021.

1. Web3 brings decentralization of the Internet

For those that may not know, Web3 refers to an ecosystem of next-generation Internet applications that will run via blockchains.

The first version of the Internet focused on static content, and the current version of the World Wide Web (Web2) is dominated by large companies that use the personal data of users in order to shape experiences for personalized advertising. However, Web3 is said to promise to return an individual’s control over their own personal data through decentralized applications. These will reward users’ attention with cryptocurrency tokens.

2. Financial service providers build ‘on-chain’

DeFi is one of the first decentralized applications to get off to a great start this year, as the blockchain infrastructure is well-suited for processing financial transactions. Several cross-border payment service providers, especially in developing countries, began switching their transfer services to blockchain platforms in 2021, and this trend is set to continue throughout the rest of 2022.

3. Tokenization of NFTs and real assets

As most will already know, in 2021, Collectible NFTs became one of the hottest topics and gained a lot of popularity very quickly. Collections of these digital arts, such as CryptoPunks and Bored Ape Yacht Club, have sold at neck-breaking prices. For example, Bored Ape #8585 at current is officially the most expensive of the BAYC collection, selling for $2.7M, and was sold via the digital art platform OpenSea.

Some of the most popular NFT collections add unique features through airdrops and additional token sales that allow users to further develop their artwork and build communities around them through various meetups, as well as social media and discord groups.

As the value of some NFT collections skyrocketed in secondary resale markets, they have also become popular with investors looking to profit from future sales.

It is even thought that it will also be possible to use NFTs in order to tokenize real assets (such as real estate or physical works of art) for sale, purchase, or to use as collateral for loans.

4. Multi-chain scaling

Multi-chain scaling will greatly promote the widespread adoption of NFTs. Most blockchains are independent networks designed to serve specific network uses. However, as the spread of blockchains increases, there is a growing need for different chains to work in tandem, i.e. interoperability.

There are already many blockchain interoperability projects (such as Matic and Polygon, or Polkadot and Cosmos) that work on ways to improve the communicative ability of different chains. Inter-chain functionality will allow users to transfer assets between various chains.

Further to this, due to Ethereum blockchain transaction fees remaining high, some applications and NFT developers are moving towards alternative blockchains such as Solana and Avalanche. However, with the emergence of Layer 2 solutions on the Ethereum blockchain, Ethereum continues to remain the dominant platform for smart contracts.

5. Play-to-earn increases among crypto games

Video game cryptocurrencies such as AXS and SLP (Axie Infinity), SAND (Sandbox) and ILV (Illuvium) skyrocketed in 2021. This created a huge amount of liquidity. In play-to-earn NFT-based games, players can use NFT-based characters to acquire cryptocurrency tokens as rewards in-game, which can then be converted into fiat currencies via exchanges.

As such, games like Alien Worlds, Axie Infinity, Sandbox and Splinterlands all became very popular in 2021 and in 2022 new games such as Illuvium, MicroPets and Star Atlas will have their official launches respectively.

As the number of players in these games gradually increases, in turn, the demand for tokens used to buy, sell and search for NFT characters will increase also. This in itself will support the rise in stock prices. The continuing development of the metaverse in 2022 will also increase the popularity of unique metaverses within games.

6. The Rise of the Metaverse

It wouldn’t be too farfetched to ponder the “Would the next ‘big’ cryptocurrency in 2022 be a metaverse coin?”

In 2021, technology companies and big-name brands had already begun to enter the world of the metaverse. For example, Facebook had announced in October that it was changing its company name to Meta, in reference to the metaverse. Then, in November, the government of Barbados made it the first country to establish a metaverse embassy in the virtual world of Decentraland.

Furthermore, MetaverseGroup.com – a vertically integrated real estate firm and a subsidiary of Tokens.com – has purchased $2.4 million worth of real estate in Decentraland. This was the largest metaverse land purchase to date and they aim to develop digital fashion shows and various dealerships here.

The trend around the metaverse could really intensify further in 2022. For example, Microsoft plans to introduce a workplace service, Mesh, as part of its Teams software. VR headsets will allow users to control their avatar and how they interact during the time they spend in the Metaverse. Games like Fortnite and Roblox have also evolved into virtual worlds where users can interact with each other in the digital space while playing.

Different brands also now have new and unique opportunities to expand their advertising activities which the Metaverse has afforded them. Nike, for example, has acquired the virtual fashion platform RTFKT, which was originally formed by Benoit Pagotto, Chris Le and Steven Vasilev in 2020. Also, Ralph Lauren launched a digital collection on the Roblox platform.

Prices of metaverse-related cryptocurrencies such as Decentraland MANA, THETA, ENJ, AXS and SAND rose nicely at the end of November, whilst high-market-capitalized coins, such as Bitcoin and Ether, were losing value.

7. Layer 2 networks accelerate Layer 1 blockchains

Layer 1 blockchain networks provide the infrastructure on which other networks, protocols, and applications can build. These blockchains include Ethereum, Solana, and Algorand. Layer 1 networks use native cryptocurrencies for transactions, increasing liquidity as their use increases. The different consensus mechanisms used by Layer 1 networks have varying levels of security, speed, and decentralization.

As we mentioned, Layer 2 networks build on this, improving the functionality that is offered by increasing speed, reducing fees, and enhancing security measures. For example, using a Layer 2 network like Polygon helps developers reduce transaction fees and latency on the Layer 1 Ethereum network.

Layer 2 networks, such as Polygon, Lightning Network, and Starknet, use different scaling solutions. An example of such a solution would be zero-knowledge (ZK) rollups. These use a side block-chain to initiate transactions, this chain would then send these transactions, in batches, to the main blockchain in order to increase efficiency. Because of this, the value of cryptocurrencies of Layer 2 networks using ZK rollups is expected to increase greatly throughout 2022.

Buy cryptocurrency quickly and easily in as little as 10 minutes.

read more about bitcoin’s history here

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IS THERE A LINK BETWEEN DUMB MONEY AND THE FUTURE PROFIT OF THE EQUITY MARKET? (Household Equity shares)

7 minutes to read

THE LINK BETWEEN DUMB MONEY AND THE FUTURE PROFIT OF THE EQUITY MARKET

Often referred to as silly money, dumb money is in reference to the average investor managing the investment steps of their own portfolio’s capital. A well-known platitude of the stock market is your average investor buying high and selling low. It is because of this trend that, at the peak of the stock market rise, the average investor portfolio holds a high number of shares. The question here would be;

“is there a link between dumb money and the future profit of the equity market?”

In this article, we will discuss how to track a portfolio’s level of equity exposure, as well as studies that have examined the reliability of this correlation trend. Household equity shares.

The topics covered in this article are:

What does dumb money do in the stock market?
Why is household equity exposure important?
The relationship between household equity exposure and future returns

What does dumb money do in the stock market?

Dumb money indicators are often referred to as ‘mom & pop’ indicators, referencing the fact that the average investor invests their money generally uninformed, are less skilled, and are generally more likely to make more irrational decisions. It is only named this because, if we have enough skill to know how to read and apply the indicators that are most relevant to our portfolio, we can more easily – and more accurately – make market predictions for the future. Practically, it is based on this principle of households, housewives, methods of following silly money. To follow the steps of housewives, you can use several different indicators.

The most well-known of these indicators are:

Dumb Money Stock Confidence Index
Equity / Money Market Asset Ratio
Retail Money Market Ratio
NYSE Available Cash Interpretation
AIM indicator
Rydex Ratio
AAII Investor Sentiment Index
Households equity exposure

From those shown in this list, the AAII may be a popular topic but it doesn’t get all of the airtime. Another prevalent indicator from this list would be Household Equity Exposure, which we discuss in the following section of this article.

What makes household equity exposure important?

In recent years, there have been regular reports in the economic media (You can see those reports here, here and here) that U.S. households hold a record ratio of shares. When we say record ratio we mean that these households collectively hold at least 40 per cent of relative investment vehicle shares.

In the image below, we can – in a slightly more credible/comprehensive way than the articles quoted above – track the ratio of the value of shares held by U.S. households to all investment vehicles. Furthermore, according to this, 40% of US household assets are currently in equities. News has shown us the index had a higher value even before previous economic crises, an extraordinary situation that hasn’t been witnessed since Second World War.

Household equity shares — households stocks graph

Anyone who has noticed that, even before major crises (see 2008 crisis, 2001 dotcom bubble), the value of the indicator peaked (see red arrows), it committed a bias in retrospectives.

In hindsight, it’s easy to mark the tops because we can have a good understanding of where they may lie in the future. However, if we couldn’t loosely predict the future, we wouldn’t be so confident since, for example, in the three years before the dotcom bubble, household equity exposure was at a historic high (above 30%), and the collapse didn’t happen for another 3 years. Therefore, it is possible to show with significantly more accurate statistical studies than visual inspection whether there is any link between the equity exposure of households and the future returns of stock exchanges.

Let’s look at the details of this further.

The relationship between household equity exposure and future market returns

The research, published under the title The Household Equity Share and Expected Market Returns, specifically looked at whether there was any correlation between household equity exposure and future return on the stock market spanning the period of 1953 to 2015.

To carry out the study, the household equity share (HEShare) indicator was created, which shows how household equity exposure changes over a given period of time compared to money market instruments. According to this, Household Equity shares varies from 0 to 1, where for value 0, 0% of household wealth is in shares and 100% in financial assets.

At the other extreme (A Household Equity shares value of 1), household equity is entirely in shares and no financial assets are held. Of course, as we have learnt that the fluctuation of equity exposure lies between 55-80%, we cannot show these extreme values in reality.

When looking at the history of the Household Equity shares indicator, particularly over the period of 1950-2015, we can easily gain great insight. Immediately we can observe that this indicator fluctuated between 55-80%. Meanwhile the corresponding chart of the FED (Federal Reserve) only shows a fluctuation of 10-40%. The reason for the difference is that the Household Equity shares indicator looks at the ratio of shares, strictly that of financial assets, and the FED’s chart shows the ratio of shares to all investment vehicles.

How to follow the Household Equity shares indicator?

There are multiple factors that are attributed to this indicator, which make it such a great tool for all.

Let’s take a look at the main elements of the indicator in the section below.

Household Equity Shares Interpretation

Household Equity shares represents all shares held by households, which is the sum of shares directly owned by households and shares purchased through investment funds. The exact data can be found in the FRED (Federal Reserve Economic Data) database and in the federalreserve.gov database:

Direct shares, under the name FL153064105.Q
The value of shares purchased through investment funds under the name FL153064245.Q.

Household Credit Assets Interpretation

Household Credit Assets represent the financial assets of households, which is the sum of three data sources:

Article FL154022005 Q – mortgage bonds
FL154023005. Q – bank deposits
FL153064235. Q – bonds

The above data can be obtained from the FRED and federalreserve.gov database.

In summary, the research discussed did in fact find a correlation between household equity exposure and future returns on the stock market. According to this, if household equity exposure increases, then the 5-year future return on the stock market can be expected to be lower.

It is important to see that this indicator does not have the capacity to time the market in the short term, it’s task is to predict the future yield of 5 years. But don’t forget, even though it predicts with a high reliability at this level, it is not infallible and can potentially be incorrect. There wasn’t always a close relationship between Household Equity shares and the yield for the next 5 years, this was particularly true in the 1980s.

Further to this, the correlation of Household Equity shares also in fact coincides with other correlations as well.

Of these, the correlation coefficient with, quite popular, CAPE is 0.4, which assumes a medium linear relationship (explanation of the correlation coefficient here). In fact, this means that in addition to CAPE, the role of the Household Equity shares indicator can also be a strengthening one.

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Key Bitcoin Charts and Indicators Every Investor Needs

8 minutes to read

Raw data and never-ending numbers can be difficult, or even boring, to conceptualize even for the cryptocurrency investors who are very prominent in the market already. but there’s no reason to rush through or skip any crucial research or analysis steps. There are some key bitcoin charts and indicators every investor needs to simplify these tasks, whilst also giving a much more tangible picture of the movement of the price of bitcoin (this does also apply to other cryptocurrencies). Essentially, these tools do the “dirty work”, providing a stable analysis foundation, and making it easier to understand and recognize individual patterns from visual representation.

When it comes to entering successful trades being able to accurately read charts is important. Therefore, it is worth investing time in your knowledge of graphs and how to properly use them. We have added the most important bitcoin diagrams throughout this article to help with this.

Bitcoin’s Logarithmic Regression Model

Linear and logarithmic graphs are no longer new to most stock market traders, and since they are used by them, we have probably already encountered these models.

The logarithmic graph is based on a short, concise change in the exchange rate, in percentage form. The model shows the evolution of bitcoin’s price over the past ten years on a logarithmic scale: every “bubble” that bursts and every cycle that ends with a new historical high can be easily read from it.

As for linear graphs, they are not really suitable for price analysis of exponentially growing assets, since the model is highly distorted. Therefore, if we are looking at the analysis of the price movement of cryptocurrencies, it is worth looking at logarithmic models, since we can easily mislead ourselves or draw inaccurate conclusions by using them.

To find out more about the difference between these two types of chart format, check out Investopedia’s article which gives more of an indepth comparison.

Bitcoin charts and indicators -The Candlestick Chart; A Common Preference

One of the oldest charts known to stock traders, candlestick charts allow us to more easily assess the possible outcome of price movements. This type of chart format allows us to analyse trends and establish probabilities when observing the market. Candles practically wrap around bitcoin’s opening and closing prices, as well as showing its highest and lowest prices within a given time. It would be a good idea to pay close attention and focus on the lowest possible time frame when analyzing a chart of this format. You should pay attention here because in many cases we are unable to see some information regarding the market, such as what happens between opening and closing. Therefore, when using this type of chart, it is advisable to take into account several different models and indicators.

RSI – The Relative Strength Index

The RSI generally intends to predict the expected rise and fall in the exchange rate, and the graph also shows support and resistance levels, which are worth watching. However, you will more often hear about support and resistance. This is because most analysts rely heavily on the graph breaking through supports or resistance as strong indicators of another price peak or low occurring, respectively.

Therefore the RSI shows the strength of a given protocol in relation to itself and measures the ratio of the given exchange rate movement as a percentage. If the strength of the index hits 70, you would expect the exchange rate to reach one of its peaks, or the exchange rate will show a downward trend; However, if it falls below 30, an increase is likely. Overall, RSI is a forward-looking indicator, and if you observe it carefully, you can quite easily get information about an asset’s future performance projections.

bitcoin relative strength index — relative strength index

Bollinger Bands – The Bollinger Tape Indicator

It is perhaps one of the most popular indicators among analysts, which is essentially based on the volatility of exchange rates and reacts extremely quickly to the movement of the price of a particular protocol, stock or cryptocurrency. High volatility causes the tape to expand, which is otherwise divided into three sections: middle, top and bottom. However, when using this it is worth using other technical signals also, if you want to be able to see more accurate, forward-looking signals.

bitcoin boilinger bands — Boilinger Bands

MA – The Moving average

If you are familiar with the majority of different indicators out there, you have most likely already come across the MA. It won’t be surprising if you have, as it is fairly simple to operate. It allows you to get information through the average exchange rate of any given period: you can use any moving average, whether it’s 14 days or 141 days. However, keep in mind that since the moving average draws observations from past data, it isn’t all that reliable when calculating data on future expectations.

bitcoin Moving averages — Moving averages

MVRV – Market Value to Realised Value

The term HODL (Meaning ‘to hold onto and not sell any positions in a given asset despite what market movements show’) – a golden rule to most bitcoin believers – plays a significant role here. When the exchange rate reaches a level where an investor it is worth selling there positions, they easily sell and give up their cryptocurrency – this is known as realized value.

The MVRV number shows when an asset is overvalued — when the number rises — or is undervalued.

LTH-SOPR for Long-term Strategies

The LTH-SOPR (Standing for Long Term Holder-Spent Output Profit Ratio – That’s quite a mouthful!) is an indicator that shows the level of profit or loss resulting from unspent outputs of Bitcoin transactions no younger than 155 days, or UTXOs*. A LTH-SOPR above 13 shows a profit, while below 1 indicates a downward trend or a loss-making investment.

*What Is UTXO? The term UTXO refers to the amount of digital currency someone has left remaining after executing a cryptocurrency transaction such as bitcoin. The letters stand for unspent transaction output. Each bitcoin transaction begins with coins used to balance the ledger. Source: Investopedia

MACD – Moving Average Convergence/Divergence

The technical analysis indicator shows the extent of the exchange rate change, as well as the momentum perceived by the trends and its future durability. It monitors the movement of the exchange rate for a short period of time and draws conclusions from it. That’s why it’s less useful when it comes to looking at the price of assets that move without a trend – fortunately, cryptocurrencies aren’t like that.

TVL – Total Value Locked

This indicator will show how much interest there is in a particular asset or DeFi protocol. It also provides an excellent opportunity to compare two cryptocurrencies, or their possible vision. Of course, the larger the TVL of the given protocol, the more interest there is around it, and the more worthwhile it would be to consider trading with it.

CCI – Identification of cyclical rounds

This indicator was developed in 1980 and since then its use has been identifying cyclical turns. It takes into account the cyclical movement of specific devices. If the CCI exceeds the top +100, an increase is expected in the market, and if it moves to the bottom -100 line, we can expect a rain trend. In order to get an accurate forecast, it is worth using a 10- and 30-day time band, from which we can filter out whether the exchange rate is at an extreme high or even a depth compared to the previous period.

MoE or SoV, which one is it?

All sorts of rumors about Bitcoin are written in two different tones: they refer to our beloved cryptocurrency as either a Medium of Exchange (MoE), which is something with a value which is agreed upon among peers, or a Store of Value (SoV), essentially meaning a treasury. Many believe that Bitcoin should first act as a store of value before it takes over the U.S. dollar. Many stock market investors base their aforementioned thinking on bitcoin volatility, since a currency that can drop as much as 30 percent in a matter of seconds is not generally considered suitable as a medium of exchange. It’s seen as being too risky, impractical, not to mention the possibility of even bread prices changing daily. It is of general consensus that volatility needs to be reduced before Bitcoin can reach MoE status.
The good news is that the graph below shows a downward trend in volatility. This is possible as Bitcoin becomes more valuable and it becomes more and more difficult to move the exchange rate. In 2021, we reached a market capitalization of $1 trillion, which is an undeniably nice result compared to the $11 trillion market capitalization of gold built up over a long period of time. From now on, the sky is the limit.

The operation of DeFi protocols differs and corresponds to the interpretation of each exchange item at the same time. In the case of price-to-sale ratio, for example, we take market capitalization instead of prices and divide it by revenue.A special form of observation is the number of addresses that have interacted using the respective token, which essentially shows the acceptance of that token. But whether it’s the indicators mentioned above or other more well-known analyses, it’s worth considering several indicators at once, given the recent “demise” of PlanB’s S2F model.

Learn more about investing, trading and diversification.

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How Investment Diversification Reduces Financial Risk

10 minutes to read

Diversification is fundamental for sound investment portfolios. Yet, despite the importance of investment diversification, its meaning remains vague for many. When wealth building, it is important to strive to reduce the level of risk in your portfolio.

This article aims to aid your learning of how to begin minimising risk while your savings increase. Let’s get started!

What is diversification?

The essence of diversification is the reduction of losses by spreading the risk burden.

Let’s say you collect an amount of physical capital, and you now want to invest that money.

How do you go about investment diversification?

You read an article online that says how particularly well a technology company is doing at this moment in time. After reading the article, you decide to invest all of your money in shares of that single company. Then, when they release the quarterly report, it shows they never reached their projections, and the exchange rate starts falling sharply. Now roughly 40% of your invested capital is already absorbed, and you face losing everything, should the share price continue to plummet.

An alternative situation to the scenario mentioned above would be that you seek out some level of professional advisory.

Nine out of 10 experts are likely to recommend buying a bigger multiple of, preferably, different products instead of just several smaller ones that are all similar to eachother.

To create such a portfolio, for example, you would buy a smaller real estate unit, as well as government securities, bonds and shares. It would even be possible to further add more investment assets different to these ones. By building your portfolio like this, you would be able to spread the risk, therefore reducing how much is held in each asset. And if the value of one asset decreases (Like with the stock price we used as an example previously), then only a smaller portion of your entire wealth is lost, because only a small percentage loses its value. This is what diversification is.

You can read about the basics of investing here

Why is diversified investment important?

As we have said, the aim of diversification reducing the risk of investment. As long as you keep your total capital in only one investment vehicle, there is a chance that you will suffer a significant loss as a result of an unfortunate event.

Economic processes are constantly changing and, therefore, so is the value of all the different assets. As a result, crises come and go – during which the value of various investment vehicles can fall significantly.

But on top of that, many things can affect their value. For example, a high-value property is still just a building and can become badly damaged (House fire) or even the quality of the property’s surrounding area, both of these reasons, and many more, can cause the property value to depreciate. Your money invested in the shares of an IT company could easily fall because of the scandal surrounding the company. And, further from this, your bonds can be devalued more or less overnight. Moreover, unfortunately, there have been cases in recent years when the issuing financial institution has become insolvent (not able to repay owed debts – bankrupt).

Although these examples seem to be extreme, over the last few years such stories could be read in credible news outlets. Unfortunately there will be more cases of this nature heppening in the likely not-too-distant future. Therefore it’s better not too underestimate the chance of such situations occurring.

In the case of a varied portfolio, usually only a small part of your assets will be in threat at any given time This makes having a diversified portfolio is moderately risk-reducing.

How does diversification work?

The most important rule of diversification is to invest in assets whose exchange rate movements don’t correlate. That is, the fall in the exchange rate of one asset class does not cause a negative change in the other.

Let’s say, hypothetically, you put 40% of your savings into an investment fund with high-risk technology stocks, and 60% into a low-risk sovereign debt or bond mutual fund. Thus, fluctuations in the price of high-risk stocks will not have such an impact on your overall savings.

By putting your money into mutual funds, you are diversifying on your own, because you are not putting everything on one company, but on, say, 60-70. So of course, here it is also worth carefully exploring the characteristics of the investment vehicle.

What should you pay attention to when building a diversified portfolio?

When developing a diversification strategy, think primarily about:

What are individual goals?
Do you want to invest regularly or in one lump sum?
How much return do you expect?
How long do you want to invest?
How much risk are you willing to take?

Do you need a flexible, disbursable**, easy-to-monetize (liquid) form of investment from which you can quickly withdraw your money if necessary? Or do you have more of a long-term reserve that you won’t expect to touch for years?

Each investment vehicle has its own characteristics. The goal is not to have money everywhere, but to divide it into a percentage of different options, thus reducing the risk.

**able to be distributed or scattered – definition source here

Why is diversifying important?

In the world of investments, there is a rule of thumb: the risk taken is proportional to the level of return. So, on the other hand, a low-risk government bond will also give a low yield. But, due to the low risk of the government bond, the returns are more or less guaranteed. Exceptions to this would include; the bankruptcy of invested companies, war and economical collapse(recession).

A newly listed company with high expectations from investors promises high returns. However, bad political or economic news can be enough to cause a stock’s value to fall by 20-30%.

This shows that it is worth diversifying our investments primarily on the basis of risk levels. On a scale ranging from low-risk investments to extremely risky assets, you need to choose the forms you’d like to invest in. Of course, it is worth combining the different risk assets in certain proportions that are relevant to your overall strategy.

What major asset classes can you invest in?

Government securities

Government securities are one of the simplest, least risky forms of investment. When you buy government securities, you essentially “lend” your money to the state, that is, you get a state guarantee. Low risk is accompanied by low returns.

Bonds

A bond differs from government securities in that you don’t “lend” your assets to the state here. Instead, they’re “loaned” to a financial institution or company, and for a fixed period of time. The risk is higher here too since, in this case, it is more possible for a company or financial institution to become insolvent(unable to pay arrears in any case). In addition, the so-called exchange rate risk is to be taken into account, which is due to the change in the value of the given bond. The higher the yield on a bond, the riskier it is.

When you buy shares, you acquire a small slice of the ownership of a particular company. This investment vehicle is an extremely high-risk asset, which should only be considered if you have good market research, market experience or – if you are more inexperienced than most – are prepared to potentially experience losses within some of your trades.

Read about market risk here

Property

A real estate investment is one of the so-called illiquid investments. This means that it is difficult to exchange a property for cash. Buying and selling a property, or even renting it, takes longer, so if you need money quickly at any time, real estate is not the best way to invest your property. In the case of long-term financial plans, however, this is an excellent asset to have. For this type of investment, the risk is moderately high, but the time and capital requirements can be significant. – despite this, if you are renting your unit out, this will easily make a return for you as a more passive income.

Foreign currency

Foreign exchange investment is one of the most skilled investment vehicles, because of this the risk management required is high. This method isn’t recommended for beginners under any circumstances.

Read our article about Forex

Commodity products

In investment terminology, naturally occurring raw materials used in different industrial sectors are referred to as commodity products. Examples of commodities would be gold and oil. In addition to foreign exchange trading, this is the other group of investment assets that requires a higher level of expertise and large time expenditure and can be very risky.

Cryptocurrency

Virtual money has recently become a very popular investment vehicle due to its return potential. Although it should be noted that there have been numerous instances of regular, unexpected crashes and unpredictable behaviour of cryptocurrencies that you can readily find information on.

Bearing all of the above in mind, cryptocurrency trading is a particularly risky area of expertise.

The easiest way to diversify investments?

The easiest way to diversify is through investment funds. The advantage of these is that by buying a single asset, you practically put your money in a diversified portfolio. For example, with a fund, you can choose an investment fund based on geographic regions (e.g. USA, Far East, Central Europe, etc.), raw materials (gold, oil), risk, or even sector. Each fund has dozens or even hundreds of securities, which also supports diversification.

In addition, this way you can diversify much more cost-efficiently than buying each of the securities, found in any chosen investment fund, separately. And further to the fact that these assets are completely liquid, a whole team of experts is engaged in achieving the best possible return on it.

Putting savings in investment funds can also be solved within the framework of your pension insurance in the form of life insurance tied to investment units

Is there such a thing as excessive diversification?

Diversification is very important in creating a balanced investment portfolio, but it can also be overdone. One of the disadvantages of excessive diversification is that the investment system can easily become overbearing for any investor. If you don’t know exactly what your money is doing and what or where losses have been made, and where to focus your attention, you may lose control of your money.

Another downside to excessive diversification is relatively low yields. Figuratively speaking, the more legs you stand on financially, likely there will be less capital allocated to each product. This is why, most of the time, these lower yields can be expected. Not only this but, lower capital allocation also means there is less risk of you losing a large proportion of investment in one go, without diversification you could even lose everything all at once.

However, this does also mean if one asset fund generates high returns, you will benefit less from it because of the smaller amount invested than if you put a larger amount into it.

This reduces the relative return on diversified portfolios, but in a balanced investment system, the strengthened portfolio security offsets this lower yield potential due to reduced risk, and therefore reduced losses.

Conclusion

As in other areas of life, it is very important to reduce the risk in finance and it can be detrimental to keep our savings and assets all in one place: whether it be in an account, in a bank account, or in the shares of one particular company. However, with a balanced portfolio of investments managed very carefully either by you or by experienced professionals, you can be sure that your wealth grows in the long term and provides you with financial security.

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In-depth Investing for Beginners: How Does It Help Build Wealth?

21 minutes to read

Are you intrigued by the concept of investing and want to learn more about investments? Then you’re in the right place!

This article will present the most important investment basics, that beginners need to know. We will also look at why investing is beneficial and what you may miss out on if you don’t take advantage of it.

If you want to build wealth — either for retirement or to achieve financial freedom — usually, it isn’t enough to make money and save some of it.

As Robert Kiyosaki said, “For every dollar you save, you can give a work suit and send it to make more money for you.”

Today, anyone can invest, with a few hundred dollars and a phone with an internet connection, anybody can get started.

However, the world of investing can seem complicated, and we often don’t know how to get started in the first place. We can find ourselves in a real sea of jargon on the Internet, where sometimes it is difficult to find the best of the available information.

Because of this, many people don’t even start investing and so, due to inflation, they continue to lose money without even realising. With the right basic knowledge, investments can be made to be much more simple.

This article will give you all of the most important information that you would need as a beginner starting out on your investment journey.

As there is a lot of information packed into this article, please see our Table of Contents below:

1) What is Investing?

1.1) 1. Cash flow / Direct income

1.2) 2. Capital gains

1.3) 3. Cash flow + Capital gains

1.4) Investment means the purchase of income-generating assets

1.5) The Difference Between Investing and Speculation

1.6) Investor Vs. Speculator

2) Why is it important to invest?

2.1) Why is it not enough to save?

2.2) Build Wealth With the Power of Interest

3) When should you start investing?

4) Misconceptions about investing

4.1) Myth 1: Investing is Difficult/ Complicated

4.2) Myth 2: The Luck of Investing

4.3) Myth 3: It Takes a Lot of Money to Invest

4.4) Myth 4: Only The Rich and Professionals Can Invest

5) Investment Funds

5.1) 1. The Main Asset Classes

5.2) 2. The Correlation between Return On Investment (ROI) and Risk Exposure

5.2.1) High Yield, Low Risk?

5.3) 3. Diversification

5.3.1) Think in portfolio

5.3.2) ETFs: One of the Best Tools for Diversification

6) Investment Concept: Summary

What is Investing?

By investing, we mean a long-term process of buying income-generating assets with the aim of earning a return from it in the future.

Self-made money-man Warren Buffett once said:

“Investing is giving up today’s consumption in order to consume more later.”

Where does the return / gain come from?

It can come from three different sources, as explained below, where we will use examples to illustrate the given point:

1. Cash flow / Direct Income

Example #1: When you invest in a company’s shares, you actually become one of its shareholders.

As incredible as it is, when you buy an Apple share, for example, you’ll be a part-owner of the company, even if you’re going to own only a fraction of the shares issued.

From the profits generated by Apple, you, as a co-owner, receive dividends on your shares every quarter.

Example #2: If you invest in a property and rent it out, you’ll get a monthly wage fee in return, in the form of the rent you receive from your paying tenants.

2. Capital gains

The prices of both shares and property can rise, from which you can achieve capital gains.

Example: If Apple performs well, the price per share will increase. Let’s assume you bought an Apple stock for $100, which later increased to $150. In this case, you would have made a total capital gain of $50.

3. Cash flow + Capital gains

For many investments, you can get your returns from both sources. In the case of shares, you can receive dividends (although not all companies will pay dividends) and capital gains.

In the case of real estate investment, in addition to the monthly wage fee, the price of your property may also increase.

Investing Means Buying Income-Generating Assets

It’s no coincidence that we highlighted “income-generating” assets above. Colloquialism and the media often misuse investment as a concept.

For example, you may often hear people remarking that they have invested in a new car or a new phone.

For these purchases to be considered an investment, we must ask the following question:

Is this ‘XYZ item’ going to produce any future returns?

If the answer is no, then the new purchase is not an investment at all but instead is known as an ‘obligation’. This is because it may incur maintenance costs, but in turn won’t subsidise the user for these costs in any way, meaning they will be out of pocket.

Another thing to consider in this case is that the item’s value is also constantly depreciating (falling).

As we have said, buying a car for personal use is not an investment; it is a cost. But this can be changed if, for example, you were to start a courier company from which the vehicle will become a means for you to earn from.

Contrary to popular belief, trading, Forex and cryptocurrency purchases aren’t actually considered to be investments. Instead, these are officially known as speculations.

The Difference Between Investing and Speculation

Despite there being critical differences between these two concepts, it can be difficult for beginners to distinguish between the two, this is also true for those who are more experienced.

According to the world-renowned investor, Philip Carret:

“The man who bought United States Steel in 1915 for $60 to profit from the sale at a higher price is a speculator. In contrast, the gentleman who bought American Telephone to get a dividend yield of more than 8% is the investor.”

Carret also, quite concisely, said the following:

“Speculation is the purchase and sale of securities or commodities merely in the hope of profiting from their exchange rate fluctuations.”

As one of the greatest investors of all time, Warren Buffett’s example reflects the difference between speculation and investment:

“There are two types of devices that can be purchased. One is where the asset itself generates returns for you, such as rental properties, shares, or a farm. And then there are devices that you buy in the hope that later someone will pay more for them, but the devices themselves will not produce anything for you. I think the second is speculation.”

Our take-away from this is an investor thinks in the long-term and buys an asset because of its future cash flow. Here the assets primary purpose is to keep your invested capital safe while achieving adequate returns simultaneously.

Opposite to this, a speculator buys a particular asset merely in the hope that its price will increase (or fall) due to market sentiment, regardless of whether the fundamental value of the underlying asset has changed.

Investor Vs. Speculator

The most critical differences between investment and speculation are the level of risk exposure and the certainty of retaining any invested capital.

In this case, the investor is more assured that they will not lose their money, whereas the speculator should know that there is a high probability that the investment can be lost entirely.

The problem is when a person believes they’re investing when they’re speculating, possibly causing some unexpected losses.

So, why would people speculate when they know the probability of loss is high?

The answer to this could be for the same reason that many people like to gamble – some may think speculation is exciting due to the, sometimes high-stake, risk, and that investments are boring in comparison.

To clarify, there is no issue with speculation, should you wish to put some of your capital here, but we must make the point that, if you wish to build wealth, then this might not be the best way to go about it (at least until you gain some market experience dealing with risk).

The best, most safe and proven way to build wealth for a beginner may be to invest.

In the world of personal finance, the general consensus is to never speculate more than 5% of your total wealth.

Why?

In the event that you lose everything that has a high-risk probability, it won’t have a big impact on your financial situation due to your other portfolio assets.

Why is it important to invest?

Since investments also involve certain risks, from time to time the question of whether it is really worth investing in the first place may arise. And, it may also be asked if there is a better alternative? Let’s look into this:

Why is it not enough to save?

Saving is the number one and most important element in achieving your financial goals, but without investing you won’t get much out of your money, depending on a number of variables.

The purchasing power of the amount held in fiat currency (Liquid cash) and that held in a bank account, is steadily decreasing due to inflation.

Many people don’t realise this fact. For example, if you set aside $10,000 today and don’t touch it, you will likely still see the same amount in your bank account in 20 years. The problem in this is that, due to inflation, in 20 years this amount will carry much less purchasing power. Meaning its value has steadily decreased throughout the years.

By investing, however, you can maintain the purchasing power of your money against inflation and increase it at the same time.

This is well reflected in the chart below, which shows an inflation-adjusted value (Real value) of $1 held in various assets (e.g. stocks, bonds, gold or cash in dollars) between 1802 and 2012.

It is clear that if you invested in stocks, for example, your initial $1 investment increased to $1,029,045 (above inflation!).

Conversely, if you kept your money under your pillow (DOLLAR), the initial $1 dropped to 0.051 cents due to inflation.

So you didn’t do anything, and yet you lost — you couldn’t even keep the value of your money.

Therefore, to answer the question posed at the beginning of this section: yes, where investing does involve risk, the alternative is guaranteed loss.

Build Wealth With the Power of Interest Interest

If you want to build wealth, whatever the reasoning (e.g. providing a good pension, building passive income or achieving financial freedom) – investing is necessary for achieving this goal.

You can increase your money by buying income-generating assets. You can then use the funds generated by these assets to purchase further additional assets that will, in turn, generate even more money. You can even continue to reinvest earnings infinitely if you want to build the portfolio quicker than you would otherwise be able to do so.

As Ben Franklin said, “Money that money produces, produces money.”

Thanks to compound interest, as you continue to reinvest earned capital, your wealth will begin to grow at an ever-accelerating rate.

Read more about compound interest and use our compound interest calculator to see how much return a month / year you can make. Click Here

The following illustrates the effect of interest rates:

As you can see, over time, an increasing and larger portion of your wealth is made up of yield (part marked in purple).

By the end of the 20 years, your total wealth was about $7000, of which you only invested about $1000.

When should you start investing?

This Chinese proverb. Although it has its own applications, it is very much true for investments too:

“The best time to start planting a tree was 20 years ago. The second best time is today.”

Why is this relevant?

The earlier you start investing, the longer you can utilise the power of interest rates.

Let’s make three examples; Michael, Jennifer and Sam.

Michael started investing $95 a month at the age of 25, for 40 years until he was 65.

Jennifer began her investments 10 years later, depositing around $126 per month, for 30 years until she was 65 years old.

Sam discovered the investments very late, meaning he only started investing at the age of 45. Because she was so far behind the others, she decided to double Michael’s monthly deposit, so Sam invested $190 a month for 20 years until she was 65.

So all three invested, on average, the same amount – that is, $45,600 – all across different time horizons.

The question is, who made more?

Let’s look at:

Note: Image is for illustration purposes only and doesn’t reflect mentioned figures

Even though all three investors allocated the same amount over time, Michael was the one who ended up with the most considerable capital.

He enjoyed the power of compound interest for the longest time, so even though Jennifer and Sam invested the same amount, Michael’s money worked harder than the other invested capital amounts.

Why? Take a look at our Compound interest calculator here to see how it works for yourself!

Misconceptions about investing

Many people have certain misconceptions that will stop them from getting started altogether. So let’s begin this section by dispelling the most common misconceptions you may encounter.

Myth 1: Investing Is Difficult Or Complicated

Sometimes, the financial sector may try to overcomplicate investments in the hope that clients will be overwhelmed with all the information and will, therefore, need to make use of their advisory services.

The truth is that with just the most basic knowledge, investments become quite simple; You can acquire the basic knowledge required for it with just a few hours of learning.

Investing will always seem complicated when you don’t understand it in one way or another. But unfortunately, this is just a natural part of human psychology where a lack of understanding will be confusing.

Myth 2: The ‘Luck’ of Investing

Many people don’t invest because they have wrongly learned that investing is just the same as, if not similar to, gambling. However, certain assets, such as cryptocurrencies, do happen to be a little closer to gambling when we compare the levels of risk, which usually creates this misconception.

So what separates investment from gambling? There are many ways in which these two topics differ from each other, although here are the main three distinguishing factors of investing:

With your investments, you have control over the level of risk exposure, and you can also limit your level of loss. Unfortunately, in the case of gambling, you don’t necessarily have the luxury of controlling these factors, meaning you can only win or lose everything.
When you invest, you essentially become the owner of that particular asset, for example owning real estate or becoming a part-owner in a listed company (stocks). When gambling, you don’t own anything once you have assigned your capital to it.
Before investing in any particular product, there will usually be a lot of information (often decades-worth) that you can first analyse to make reasonable and informed decisions. On the other hand, gambling will often not be able to offer this opportunity beforehand

Myth 3: It Takes a Lot of Money to Invest

Depending on the paltform, you can start investing from $10 today, so this misconception is also silly.

Moreover, you can use even smaller amounts of money to build significant wealth in the long run, thanks to the power of compound interest.

However, the important thing is that you start at the earliest moment you feel ready. With this method, you can gain invaluable investor experience with smaller capital mounts, meaning you can keep overall losses to a minimum in the long term.

These experiences will come in handy later in your investment journey when you have more capital at your disposal and start to invest more. If you’re not sure why using this method is helpful, the fact is you will make mistakes when you first start. However, learning from these instances, which produce more minor losses, and being able to apply the experience gained in future situations means you will be better prepared for more considerable risk exposure much quicker.

Myth 4: Only The Rich and Professionals Can Invest

Many people believe that only the more privileged of people can invest. This couldn’t be further from the truth.

Even if this was once true, practically anyone could invest in today’s market. We can say this is regardless of age, income or professional knowledge. And as we previously stated, it can be more beneficial in the long run to you, as an investor, to begin your portfolio with smaller capital amounts.

The Investment Funds

This section will look at the most important basics that you need to know about investments.

1. The Main Asset Classes

There are many investment options. We can classify almost all of these options into a corresponding asset class; An asset class is a group of financial instruments with similar characteristics.

A) Cash and cash substitutes (cash, T-bills, savings accounts)

This is the more simple of the groups, with the lowest risk management requirement. The primary advantage of such investments is high liquidity (immediately available or easy to convert into cash), with a maturity of up to 1 year.

Cash and bank deposits are included here, as are securities such as the Treasury-Bill (T-Bill) issued by the U.S. state, which is internationally recognised and often used as a risk-free interest rate.

B) Fixed income (bonds, government securities, bond ETFs)

It is an investment in debt securities. These are known as fixed incomes because securities offer investors a fixed interest payment within a specified period.

Fixed income is usually simply referred to as “bonds.”

C) Equity (shares, mutual funds, equity ETFs)

The term ‘equity’ derives from the fact that shares are equity securities. By investing in listed companies, we – in turn – become part-owners (or shareholders) of that company.

Through something called an ‘Exchange Traded Fund’, otherwise known as an

ETF, we can acquire shareholdings in a pre-prepared selection of companies at once instead of deciding what companies to allocate our money to one at a time.

An example of a more popular, and more importantly, proven ETF would be the S&P 500, the US index.

D) Alternative investments

As other financial instruments are commonly referred to as “alternative investments”, Real Estate; Commodities; Forex, Hedge Funds, Private Equity, and Derivatives are included in this asset class.

2. The Correlation between Return On Investment (ROI) and Risk Exposure

One of the main principles of investment is that return and risk go hand in hand.

This means that investment opportunities offering higher returns are associated with higher risk at the same time.

In the same way, low-yield investments offer greater certainty because of their low risk.

The following chart shows the yield-risk relationship between investment opportunities within different asset classes:

Both bonds and stocks are good examples of the point that we are trying to make here.

The risk of shares is higher than that of bonds. This is due to the fact that shareholders have what are called “residual claims”. This means that when it comes to any profits a company makes, creditors are paid first and then the shareholders. Meaning that, if the company is profitable, a policyholder’s returns are guaranteed, whereas those expected by a shareholder aren’t so certainly ascertained.

Further to this, in the event that the company goes bankrupt and is liquidated, the creditors’ claims are first satisfied from the assets sold and only after this has been done – and shareholders will only be paid if there is anything left.

Meaning when the liquidation of a company does unfortunately happen, shareholders often get nothing.

As referenced earlier in this section, because shareholders take on higher risk, they also expect higher returns in return.

In another example, government securities have a lower risk against corporate bonds, since the security of our capital depends on a state’s ability to repay us, compared to this companies carry more risk.

Of course, there are exceptions to this. An Apple bond is much safer than, say, a Ugandan government bond. This is because smaller countries carry more risk.

High Yield, Low Risk?

A recurring question you may sometimes hear, or even ask yourself is; “How can I get a high return with low-risk exposure?”

Unfortunately, there isn’t such a thing, at this moment in time, that can be utilised.

If there were, it would be an arbitrage situation that investors would understandably take advantage of very quickly and so it would disappear in the blink of an eye.

For example, imagine an extreme situation in which the yield of an almost risk-free government bond is higher than the yield of a stock, which carries a much higher risk;

Institutional investors (whose thousands of employees and computer algorithms constantly monitor the market) would immediately start buying government securities, as it has become quite attractive compared to other investment opportunities. This would increase the demand for government securities and therefore the price.

A higher price would simultaneously mean a lower yield, thus correcting the yield on government securities to the point where it reflects its risk.

So if you want to get a high return, you have to take a higher risk.

3. Diversification

While the risk of investing cannot be completely eradicated, it can be reduced by avoiding unnecessary risk.

You may have heard the saying, “Don’t put all your eggs in one basket.” This is very relevant here.

Many people make the mistake of investing all their money in one particular company’s shares. If you were to do this, and something happened to your chosen company, you could lose a lot of money or even potentially lose all of your invested money.

Think in Portfolio

Instead of individual stocks or bonds, you may want to consider a portfolio that is more broad and diversify your investments across different asset classes.

This will make the performance of your portfolio less dependent on the performance of a single asset class, which will:

Reduce the risk of your investments
Increase the return on your entire portfolio
With a well-diversified portfolio, you can achieve a much more favourable return-to-risk ratio.

As we have already seen, each asset class has its own unique feature and they each have an individual reaction to different market changes.

In general, where one asset class performs poorly, another will moderate or offset it.

Example: In times of crisis, when stocks tend to fall sharply, bonds can provide security, thus balancing the performance of your portfolio.

Not only should you just diversify between asset classes, but it would be beneficial to at least consider diversifying the products bought from within the same asset class.

Example: Instead of just one company, you can invest in many multiples, allowing you to spread your risk a lot more.

As you can see, you can diversify on three levels:

Between asset classes
Within asset class between different, individual investments
Between different regions and industries

ETFs: One of the Best Tools for Diversification

The following question is a great one, not to mention reasonable to ask:

“I don’t have the money to buy hundreds of shares. In fact, I don’t have the time or knowledge to properly manage them. What should I do?”

There is a saying about finding a needle in a haystack. There is also a continuation to it which says, “Instead of looking for the needle in the haystack, buy the whole haystack instead”

With ETFs you can buy the whole haystack, figuratively speaking anyway.

With a single purchase you can buy into hundreds or even thousands of shares for any amount you can put aside. Minimum amount can vary platform by platform on eToro you can start investing from $10

Investment Concept: Summary

We’ve all heard that we should invest, but many people don’t start. Many are held back by the potential investment risks.

Investments can be risky, but if you invest according to a well thought out investment strategy, you can reduce these risks and have a fairly higher degree of certainty that you won’t lose as much as someone who doesn’t have a set strategy.

Don’t forget because of inflation, if you don’t invest, you are guaranteed to experience some form of a loss.

So therefore investing remains the most beneficial way to achieve your long-term financial goals of building wealth.

While investing may seem complicated at first, with proper research, it will surely become a lot more simplistic and can show good returns.

Have you invested before? Or perhaps you are currently studying and plan to invest in the future?

Whichever situation you are in, we hope that we have been able to cut the jargon for you by clarifying the truths of investing.

Please understand that NO information in this article should be considered investment advice and should only be used as a guideline.

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