Baby Steps

Investing, that sounds scary. For someone who has just  joined the workforce, sacrificing 500 pounds to invest can be quite intimidating. But I know I’m feeling that way because I do not have the sufficient knowledge in this area yet.

20,000 pounds goal by Sept 2014. Am I kidding myself? But when there’s a will, there’s a way.

There are various financial products in the markets, for eg: equities, bonds, mutual funds, indices, ETFs. For those who wants a higher leverage, you can have a go at CFD (contract for differences) and forex trading. Of course, higher returns come with higher risk for the latter.

I have chosen to focus on equities (aka stock of a company) for now. In simple terms, if you are invested in 1 stock of company A (which has a total outstanding stock of 100), you own 1% of the company. If you bought that stock for $1, and it has risen to $1.50, you have made 50% profit on your investment; if the price drops to $0.50, you make a loss of 50%.

There are 2 types of stocks: large cap and small cap. The higher the market capitalization rate, the more steady the firm is, hence less risk involved which leads to less returns. I have decided to invest in small cap firms which usually outperforms the large cap ones due to higher risk, and in order to minimize that risk I will have to perform some analysis. Small cap firms also have less coverage from research analysts, hence the higher chance of an arbitrage.

There are 2 types of analysis: fundamental and technical. Fundamental believers analyze a company based on financial figures such as P/E ratio and EPS, while technical analysts look at charts to determine the market trend. I believe in 70% fundamental analysis and 30% technical, so my next goal is to look at a company’s financial statements.

Anticlimax: That will have to be done another day as it’s getting late.

Do you only have $20-1000 but want to invest anyways? Here is a (somewhat) useful page for you then:

http://www.fool.com/investing/brokerage/how-to-invest-20-100-and-1000-and-more.aspx

Ok sleeping time! 🙂

Disclaimer: I am but a beginner in this treacherous world of finance, constructive feedback are highly welcomed if you see any mistakes/ misconceptions in my posts.

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