Here’s how this works…
Each week we’ll 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
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A MUTUAL FUND IS ESSENTIALLY A COLLECTIVE INVESTMENT VEHICLE THAT POOLS MONEY FROM MANY INVESTORS TO PURCHASE A DIVERSIFIED PORTFOLIO OF SECURITIES, SUCH AS STOCKS AND BONDS. THIS CAN BE LIKENED TO A ‘BASKET’ OF INVESTMENTS, WHERE EACH INVESTOR BUYS SHARES IN THE FUND, THEREBY GAINING EXPOSURE TO ALL THE ASSETS HELD WITHIN IT:
Investing in a mutual fund allows individuals to reduce risk; if one investment underperforms, its impact on the overall fund is minimized due to the variety of assets.
Mutual funds are managed by professional fund managers, relieving individual investors from the need to actively research and manage their investments.
Mutual funds offer access to diverse asset classes, including stocks, bonds, and commodities, making them an affordable option for portfolio diversification.
Mutual funds come in various types based on investment focus, including equity funds (stocks), fixed-income funds (bonds), and money market funds (short-term debt).
INVESTMENT NEWS FOR BEGINNERS
Two big banks just raised their S&P 500 targets. Here’s why:
Recently, two major banks (Deutsche Bank and Barclays) increased their estimates for how high the S&P 500 index might go this year and next. The S&P 500 is a group of the 500 largest public companies in the US. Its value is a key measure of how well the US stock market is doing and, it’s a popular choice for people investing in funds or stocks for the first time.
Why this matters to you…
If big banks think the S&P 500 will go up, this can affect how the entire stock market behaves, confidence levels, and even what financial advisers might recommend.
The S&P 500’s value is a simple way to track how the overall US market is doing. Many investment funds in the UK and globally (like ETFs and ISAs) use this index as their benchmark.
Positive predictions might make more people want to invest, which can push prices up even further—but predictions do not guarantee outcomes, so it’s also important for beginners not to follow “hype” without understanding the risks
What you need to do…
Pay attention to the financial news. When interest rates drop, as are being predicted, borrowing gets cheaper for companies and consumers, often helping stock prices. Central banks lowering rates is usually seen as good news for stock investors, so it’s important to look out for and pay attention to announcements about interest rates.
Similarly, if big companies keep earning strong profits and technologies like AI keep growing, this can help push share prices higher for related sectors—especially big tech companies. So, make a point of staying informed about the performance of the leading companies in key sectors like AI and technology..
Would your cash be better off in an investment trust?
Over the past decade, investment trusts have consistently given better returns than leaving money in a regular cash account. While cash is safe, it usually grows slowly, often not enough to keep up with the rising prices of everyday items (inflation). Investment trusts, which are a way to pool money with other investors to buy a mix of assets (like shares or property), have outperformed cash savings in every ten-year period recently.
Why this matters to you…
Investment trusts offer a way to spread (diversify) risk by investing in lots of different assets.
They also offer regular income, in the form of dividends, on top of growth.
What you need to do…
If you’re saving for goals more than a few years away, it’s worth investing through options like investment trusts that can help your money grow faster than cash savings.
Start small. Investment trusts let investors get started with a relatively small amount, making them more accessible for beginners.
US government heads towards first shutdown in six years as lawmakers fail to reach agreement.
The US government is close to a shutdown because lawmakers from the two main political parties (Republicans and Democrats) cannot agree on a plan to fund government services. If they do not reach a deal, many government offices and services will close temporarily. This could mean delays or suspensions in services like issuing government benefits, food assistance, and national park operations, although important services—like border security, medical emergencies, and Social Security payments—will mostly continue. Past shutdowns have affected many areas of life, but most regular people and investors will feel mainly short-term effects, especially if the shutdown is brief.
Why this matters to you…
When government shuts down, economic data (like jobs figures and inflation numbers) often isn’t published. Investors use this information to decide whether to buy or sell stocks, so missing data creates uncertainty in the markets.
Stock indexes (like the Dow Jones and S&P 500) sometimes drop during shutdowns because traders worry about instability, though these drops are usually small unless the shutdown lasts a long time.
Market volatility (price swings) often increases, which may give opportunities for experienced traders, but can make things confusing or risky for beginners.
What you need to do…
Do not panic if the market falls modestly or swings up and down during a shutdown. Most impacts are short-term, and history shows markets often recover once shutdowns end.
If investing for the long term, this kind of short-term political event is usually not a reason to change investment plans or sell stocks—stick to investment goals and avoid making fast decisions based on temporary news stories.
Use market dips as a learning experience—see how different companies and sectors respond, and remember that “volatility” (up-and-down price swings) is normal in investing, especially during political disputes.
Thanks for reading this fourth edition.
Whilst we can’t promise to make richer, we can promise to make you better informed and that’s kind of the same thing.
And so, we leave you with this new information, hoping that it’s made you 1% wiser than you were before you read it.
Join us again next week to add another 1%!