Usually, if you are an active trader, having a plan is the best approach. You need to figure out when you want to enter and have a strategy to guide your exit. Otherwise, a quick gain may be offset with a fast investment loss. However, if you set your sights too low when you plan the timing of your exit, you can miss out on an exciting opportunity. Similarly, if you don’t listen to your gut, you might regret selling when you do.
A term coined by Peter Lynch, a legendary fund manager, “tenbaggers” are investments that appreciate to 10 times their initial purchase prices. Usually, they represent stocks with incredible growth potential, but also a lot of risk. Not everyone has the stomach to strive for a tenbagger but, if you do, here are some insights into what to look for and my story of how I landed one. So here we go, here’s how to get a 10-bagger.
The vast majority of people who have even considered investing some of their money understand that diversification is important. It allows you to limit your financial risk by ensuring that all of your cash isn’t sitting in a single stock or another investment vehicle. That way, should a negative event harm one investment’s value, all of your money isn’t lost.
However, there is also a pervasive misconception about investing. Many believe that you need a specialized skill set to diversify a portfolio. In reality, there are options that handle the diversification part of investing for you.
Index funds don’t represent a single stock, bond, or other form of investment. Instead, they attach to larger markets, reflecting a number of investments in a specific category. By choosing index funds, you automatically have a level of diversification. Plus, you may even see higher gains that you would with individual stocks and bonds.
If you want to diversify your investments, here are some funds worth exploring.
Standard & Poor’s 500 (S&P 500)
The S&P 500 index tracks the market capitalization of the 500 largest companies in the United States. This means the fund isn’t tied to a single company or even industry, automatically providing a level of diversification.
Additionally, the S&P 500 index has largely experienced gains over time, typically beating inflation. While all markets fluctuate, over the long-term, gains are more common. Since the creation of the financial markets, the S&P 500 has averaged roughly 6 percent in growth. If you look at more recent times, it may be closer to 10 percent without the reinvestment of dividends. If you are reinvesting your dividends each quarter, these numbers can actually be substantially higher, even reaching into 14 percent territory.
While there are never any guarantees when it comes to investments, most markets trend upward. By selecting the S&P 500 index fund, mitigating risk during low points is easier, and long-term gains are incredibly likely.
An international index fund operates like any other stock-oriented index. However, instead of comprising of US companies, it focuses on international markets.
By adding an international index fund to your portfolio, you achieve an additional level of diversification. Now, your investments aren’t tied to a single country’s economy, which may help should the US experience a financial crisis.
Additionally, international markets may have higher growth potential than the US market, allowing you to achieve more substantial gains. Emerging markets tend to be higher risk but can experience rapid growth as the country or countries continue to develop. Most brokers issue ETFs and mutual funds that track a group of stocks in a specific country or set of countries that are expected to experience high growth.
However, some international markets are also in similar positions to those in the US, so you don’t necessarily have to take on a lot of risk if you want to explore these options.
Bonds are a more conservative investment vehicle, providing the ability to achieve a fixed and predictable income. The concept focuses on being able to access the money on a regular schedule, largely when a bond reaches maturity.
However, you don’t have to invest in individual bonds to get the income-generating benefits. Instead, you can build wealth with a level of diversification by selecting a bond index. For example, an ideal bond fund for some investors may be the VBMFX. That is an index that invests in bonds of from some of the largest and most creditworthy companies in the country. It is similar to the VOO, but better suited to fixed-income goals.
It’s important to note that investing solely in bonds or bond indexes typically isn’t an ideal strategy for investors who aren’t retiring in the near future. Bonds increase in value at a slower rate when compared to stock, making them less suitable for key growth periods in life.
Ideally, you want to find a balance that meets your needs, goals, and expectations, investing some in stocks and some in bonds. Where that point lies will also depend on your risk tolerance. Some may be comfortable with 80 percent in stocks and 20 percent in bonds while others may find a 60/40 split to be a better approach. In the end, you have to choose a percentage that’s right for you, and there isn’t a magic number the guarantees success.
Real Estate Investment Trusts (REITs)
Real estate is an excellent diversification source. Buying a property can be riskier than some other investment vehicles, but it may also provide opportunities to make much higher returns than paper asset markets (VOO), including in the 20 to 25 percent range.
The large return is the result of selling the asset once market prices increase after 3-10 years. However, incidents like the recent housing market crash in 2008 can occur again, leading to low returns or even losses.
REITs or real estate investment trusts, provide a way for retail investors to invest real estate without actually purchasing property themselves. This can lower the cost of entry into the real estate space as well, as you don’t have to buy an entire property on your own. Essentially, these funds pool capital for real estate investing, collecting money from a variety of investors.
REITs should pay around a 10% dividend because they need to pay out at least 90% of their income as dividends. If you have less than $100 to invest, REITs may be a great option for you.
Bonus Investment Approach: Dollar Cost Averaging
Dollar cost averaging isn’t an index fund, but an approach to investment that can help you accumulate wealth. It involves investing the same amount of money into an index on a set schedule, usually monthly or every two weeks.
The approach tends to be more effective than attempting to time the market, an approach that many consider to be more of a myth than a legitimate technique. For example, if you hold all of your money and try to invest it all on an annual basis, if there is a subsequent crash, you’ll likely experience heavy losses. However, by regularly purchasing shares regardless of whether the index is up or down, you hedge some of that risk.
Ultimately, investing in indexes is a smart move if you want to maintain a diversified portfolio with greater ease. Plus, it’s an option available to anyone, making it ideal for new and seasoned investors alike.
It’s been a year of upheaval across some parts of Europe with snap elections, unexpected polling results and changes of leadership. In France, the Netherlands, Germany and the UK, government elections have punctuated 2017 and to an extent, all of them have provided us with periods of uncertainty.
So, can we look forward to more of the same in 2018 or are we likely to expect a period of relative stability compared with the developments across the previous twelve months?
In the weeks leading up to an election the air of uncertainty can affect a country in a number of ways: The economy can face a slow down with a dip in public spending and in turn, this can spread to the trading markets where the currency in question can face a hit.
What happens after that will largely depend on the result of the election itself. If the poll is a predictable one and if the ruling party is returned with a comfortable majority, the likelihood is that economic stability will follow its political counterpart.
However, if the forecasters get it wrong and the exit polls fail, as they have done across Europe and beyond, chaos can ensue.
2017 saw national elections take place in Germany and in the UK and while the ruling parties were returned in both cases, the outcome was far from comfortable for those directly involved. In Great Britain, ruling Conservative Prime Minister Theresa May took the gamble to call a snap vote in June in an effort to get a rubber stamp from the electorate and to form a ‘Strong and Stable’ government for the next five years.
The punt backfired however and the current ruling party is some way from offering strength and stability to Britain right now. The Pound was already on a downward spiral due to the continued ramifications of Brexit and the uncertainty that followed the British minority government only served to see Sterling drop even further.
In Germany, a similar outcome happened although Angela Merkel’s grip on power seemed a little more solid after the Federal Election vote at the end of September. However, fast forward two months and failure to secure an effective coalition leaves the country in a state of flux with talks on the subject unlikely to resume until the New Year.
In the interim, both countries have seen calls for their leader to step down amidst reports of challenges from within the respective parties. And, in the UK, few observers are ruling out the possibility of the country’s voters returning to the polls for yet another election in 2018. Along with protracted Brexit negotiations, the UK lurches from crisis to crisis with no end in sight just yet.
As far as confirmed elections in 2018 are concerned, our attention switches to Scandinavia where Sweden is set for the vote in September. Elsewhere, it’s all relatively quiet so that, at least, looks to be a positive point.
However, while there may be a lack of elections on the horizon, the knock on effect from polls in the UK and in Germany means that we start the New Year with further uncertainty. For the sake of the strength of the pound and the euro, those situations must be quickly resolved.
The more you know… It’s amazing how knowledge changes your behavior. Most of us are bad with money, or we were sometime in the past. We all understand that it’s important to change these kind of financially wasteful behaviors, but we just…don’t…do it. Why is that? I don’t think it has much to do with lack of self-control, though that’s the thing we tend to beat ourselves up about. It’s that we don’t know what we’re doing.
Ol’ Plato once said that ignorance is the only evil. Applied to personal finance, that maxim would indicate that the more we learn about money, the better our financial lives will become. That’s an interesting thought, but you might wonder if it’ll hold water in real life. I can say from personal experience that I wasn’t able to make a change in the way I used my money until I learned about money itself.
Financial knowledge gives you a perspective that you’d otherwise lack. You learn the value of money, and you learn why it’s important not to waste it. You also learn how your life can change for the better if you have more of it, or simply regulate it better. These are important realizations that everyone needs to have if they hope to have any future financial stability. This knowledge is also the foundation of investment. You can’t handle investment if you can’t handle your personal finances.
So where does one start? This can be the most discouraging part of learning about money. Not all of us have the time or resources to get a degree in finance. We just want to have more money left over after we pay our bills. I would recommend a double-tiered approach:
Learn about the money you have. This is the essence of budgeting. You’ll have to track all the money that you brought in during the last couple of months. Try to get your final figure down to the dollar. Then figure out how much you spent. Most people find that the second figure is higher than the first.
Now figure out how much money you should spend next month. When the 1st of the month rolls around, stick to this plan. MAKE it work. If you’re able to make this budget work for several months in a row, you won’t be sinking or treading water. You will have learned the basics of personal finance and you’ll be ready for something more complicated.
Learn about the money you want to have. Investing is about growing the money you have. A great way to learn about basic investment is CMC Markets. They have a lot of educational resources in addition to their brokerage of quite a handful of quick turnover investment forms. Because their investments can be initiated and grown to maturity in hours or days, they’re a great way for a new investor to learn investment before tackling investments which will take decades.
Knowledge is the foundation of investment. Without it, you won’t be able to tell where to put your money. Knowledge is the best way to allay risk in investment. So invest in learning. It has a better return than any other investment.