Umming and aahing about starting to invest but not sure where to start? Here's your 101.
Did you know that between 1900 and 2021, the ASX200 has returned an average 13.2%.
And that is a whole lot better than your regular savings account could even dream of returning.
We often hear about people in the Flux fam looking to sink their teeth into investing - but not knowing where to start so here are some 101 definitions that every would-be investor should know.
Asset allocations is the blend of assets you’ve chosen for your investment portfolio.
That might be a combination of cash, shares, maybe real estate too.
Your asset allocation reflects your goals as an investor and your risk tolerance.
For example, if you have $500,000 to invest - you may choose to put $300,000 in property, $50,000 in shares, $100,000 in individual shares and the remaining $50,000 in ETFs.
A benchmark is any standard used to measure the performance of a share, fund, or other type of investment.
For example, an index like the ASX200 is used as a benchmark by investors to compare it against the performance of their own investments.
Bonds are a type of loan issued by a company or government as a way of raising funds.
In return, they promise to pay you back your original amount after a certain period (like 10 years), plus they pay you a little bit of interest (known as ‘coupons’ regularly).
Bonds are considered to be safer than stocks because you usually know exactly how much money you’re going to get back… as long as the borrower doesn’t run into serious trouble.
A broker is an individual or company that buys and sells stocks and other investments on behalf of an investor.
In exchange for facilitating this transaction, the broker will take a commission.
Today, most people have a brokerage account with an online broker rather than investing with an individual because it’s lower cost and effort.
A capital gain happens when you make a profit by selling an investment for more than you originally paid for it.
Sold your Tesla shares for $174 a pop after buying them for ~$12 in 2016? Score! That’s a capital gain.
In Australia, we also need to pay tax on our capital gains.
This varies depending on when you purchased the assets and how long you’ve held it for.
A capital loss is the exact opposite of a capital gain.
It happens when you sell an investment for less than you originally paid for it.
Bought Zip Co shares in 2020 thinking you’d get in on the BNPL hype… only to watch its share price continue to drop ever since?
If you sell those Zip Co shares, you’ll have made a capital loss.
This is the finance bro way of saying “don’t put your eggs in one basket”.
Diversification is an investment strategy where you split your investment across different asset classes.
This mix helps protect your money. If one investment doesn't do well, the others might still be okay, reducing the risk of losing a lot of money all at once.
When you own shares of a company, you actually partly own a piece of that company.
If the company does well and makes a profit, they might share a bit of that money with you through dividends.
A dividend is a portion of a company’s profits that are paid out to shareholders.
Companies can choose whether or not they want to distribute dividends and how much they want to distribute.
These definitions should help you get started on your journey as an investor.
But if you’ve already mastered these definitions and you’re keen to take things up a notch, let us know in the comments.
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