If you make an investment, it must be because of a reason. Since investment entails risk, you must be satisfied that your reason is sound and reasonable. The "good" reasons why people invest is either to (1) Save up for retirement and/or (2) Ensure their assets are protected against inflation. Other reasons why people invest are: they want to get rich and/or because of peer pressure. These two … [Read more...]
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What is equity?
In accounting term, equity refers to the portion which a shareholder is entitled to in a company. The equity of a company is Assets less liabilities. Equity is also equal to Retained Earnings at the beginning of the period + Income + Other comprehensive Income - Dividends paid in that period. In investment terminology, equity refers to investing in stocks. Because stocks are traded on the stock … [Read more...]
What is fixed-income?
Fixed-income or bonds refer to the debt issue by a company. When a company wants to borrow money from the public, it will issue bonds. Lenders or investors buy these bonds. These bonds will pay a regular fixed interest through the tenure of the bond. When the bond matures, the company returns the "par" or face value of the bond. The risks of fixed-income are default risk (i.e. the company … [Read more...]
What are “good” and “useless” risks?
It has been said to get potentially higher return, one must take risk. This is not entirely correct. There are two main sources of risks namely systematic and non-systematic risk. Systematic risks are those which affects the entire broad market. Examples are interest rate risk, money supply, political risk, etc. Non-systematic risks are those which are peculiar to the company concerned and … [Read more...]
Why most people are losing money from investment?
Most people lose money from investments because of: Speculation and investing in higher non-systematic risk Market timing such as investing when market is going up (thus buying at highs) and "cutting lost" when market is coming down which is selling when lows. High cost. High cost of investments comes from trading fees (i.e. brokerage fees), bid-ask spread, management fee, impact cost, … [Read more...]
Why most people exaggerate earnings from investment?
Most people will exaggerate earnings from investments due to the following reasons: a) It is shameful to tell others you have lost a lot of money. Thus people will tend to exaggerate earnings when it is actually quite small b) People tend to "write-off" past investment mistakes and pretend it never happen and so they don't tell people about their shameful past c) Earnings are exaggerated … [Read more...]
Why property investment seems to be a better?
Property investment appears to be a better investment due to the following reasons: The property value appears to be less volatile than the stock market The capital gain seems to be larger compared to stock investments For (1), the property value appear to be less volatile is due to the fact that property are illiquid assets that are seldom traded on the open market. At any one … [Read more...]
What is meant by asset allocation?
Research has shown that 90% of the portfolio return variability can be explained by asset allocation. By mixing a combination of bonds and equities, it is possible to adjust the risk of the portfolio and at the same time determine the potential return. A greater proportion to equities increase the risk of the portfolio but provide a potentially higher return on a long run. On the other hand a … [Read more...]
What is meant by market return?
The market return refers to the performance of the broad equity market. For Singapore, the STI index is commonly used as a market return. For US, the S&P 500 is often used. For global but developed countries, the MSCI World Index is commonly used. For emerging market, the MSCI Emerging Market Index is often used. When refer to an index, it is important to ask when is the index merely … [Read more...]
What is meant by benchmark return?
A "benchmark" is the how a fund manager is judged against. It is often a market index such as S&P500, STI or MSCI World index, etc. If a fund manager can consistently outperform the index, it means the fund manager is good otherwise the investor is better off investing in the benchmark itself using index funds. … [Read more...]
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