Here’s how this works…
Each week, we will introduce you to one new investing term that you’ll need to know if you want to start investing.
Then we’ll provide a summary of the past week’s financial news and explain why it’s relevant to you as a beginner investor and, more importantly, how you can use this knowledge to your advantage.
So, let’s get cracking!
TERM TO LEARN
UNDERSTANDING YOUR RISK TOLERANCE IS ESSENTIAL FOR INVESTING. BY ASSESSING YOUR RISK TOLERANCE, YOU CAN CREATE A BALANCED INVESTMENT STRATEGY THAT SUPPORTS YOUR LONG-TERM OBJECTICS AND HELPS YOU STAY CALM DURING MARKET FLUCTUATIONS.
Tips for assessing your risk tolerance:
Self-assess: Consider your comfort with market fluctuations. Are you open to higher risks for greater returns, or do you prefer stability, even if it means lower potential gains?
Evaluate your time frame: Longer time frames allow for more risk, while shorter timelines necessitate conservative investments.
Invest according to risk tolerance: Choose stocks and other investments that align with your risk tolerance:
- High risk: Small-cap stock & growth stocks.
- Moderate risk: Mid-cap & large-cap stocks, index funds & ETFs.
- Low risk: Dividend stocks & bonds.
Adjust over time: Regularly reassess your risk tolerance and adjust your investment strategy accordingly as your finances and goals evolve.
INVESTMENT NEWS FOR BEGINNERS
What is a ‘K-shaped’ economy, and what’s causing the divide?
The 'K-shaped economy' means the economy is going in two different directions at the same time, just like the arms and legs of the letter 'K'. On one side (the upper arm), wealthy individuals and big companies are growing richer and doing well. On the other side (the lower leg), people with lower incomes and small businesses are struggling to keep up with rising costs or job losses. This split is becoming more obvious after recent changes in interest rates and inflation, and it’s affecting how different groups spend and invest money.
Why this matters to you…
The K-shaped economy changes how stocks perform, especially companies selling expensive goods versus basic, affordable items. Some companies benefit while others struggle, affecting share prices and investing outcomes.
Economic policies (like interest rate changes) meant to help everyone sometimes only help the rich, which can make the divide bigger.
Inflation and layoffs, especially for lower-income groups, can change what people buy and which companies grow. For small investors, understanding these trends helps make better decisions about where to put your money.
What you need to do…
Look for companies or funds that benefit from long-term consumer trends or have stable earnings, regardless of economic divides. For example, technology and luxury brands may perform better in a K-shaped economy, while budget retailers could struggle or sometimes thrive depending on demand shifts.
Diversifying (spreading investments across different assets and sectors) can help protect against instability. The K-shaped model shows that not all parts of the economy move together, so don’t put all your money in one type of stock.
Economic reports and company earnings calls often give clues about which groups (rich or poor, big or small businesses) are doing well. Learning to spot these clues helps you make smarter investment choices.
Yen intervention warnings flash amber.
There are warnings from Japan about possibly stepping in to support the Japanese yen, which has been getting weaker compared to other currencies like the US dollar. This "intervention" means the Japanese government or its central bank may buy yen or sell other currencies to try to stop the yen from losing more value. They do this because a weak yen makes imported goods more expensive for households and businesses in Japan, leading to higher costs for everyday items. The government is concerned about these impacts and might take action soon to stabilize the currency and avoid sudden market changes.
Why this matters to you…
Currency intervention signals market uncertainty: When governments intervene, it shows that the currency is volatile, which can affect investor confidence and the stock market, especially in global sectors.
Interest rates and monetary policy influence currency value: Japan's decisions on interest rates affect the yen's value, which in turn affects inflation and economic growth. Key factors for investment decisions.
For investors who hold stocks or funds related to Japan or global markets, yen movements impact the value of returns when converted back to their own currency.
What you need to do…
Monitor currency news when investing in international stocks or funds, as exchange rate changes affect returns and company performance.
Currency interventions by governments are rare but meaningful events that can create short-term market volatility. Be ready for possible price swings in affected stocks or currencies.
For UK-based investors, Yen weakness or intervention may indirectly affect global markets and commodities prices, influencing broader portfolio performance.
Should you buy at all-time highs?
Is it a good idea to buy stocks when the market is at all-time highs, meaning the stock prices are higher than ever before? Many people worry that buying at these high points means they will soon face losses because the market might crash. However, historical data shows that markets often keep growing after reaching new highs. In fact, investing at all-time highs has led to strong returns over the following months and years more often than not.
Why this matters to you…
Trying to buy only when prices are lower is risky because markets can move unpredictably, and missing out on the highs can mean missing significant gains.
Since 1950, markets have reached thousands of new highs, showing that this is part of a normal upward trend over the long term.
What you need to do…
Since timing the market is tricky, consider investing regularly and not trying to wait for a market dip that might not come soon.
The market generally grows over time, so keeping investments throughout highs and lows can build wealth steadily.
Be aware that fear of buying at highs is common, but should not drive your investment decisions. Use data and facts to guide your actions.
Thanks for reading this tenth edition.
This is your weekly reminder to be cautious, yet bold. Assess risk, but don’t procrastinate.
And if that sounds like contradiction………then it kind of is. You’ve probably worked out by now, if you didn’t know already, that investing success isn’t a straight line and is fraught with contradictions.
So, pay attention to the financial news, do your research, and stay curious.
We’ll be back again next week. Will you be joining us?