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
REAL ESTATE INVESTMENT TRUST (REIT):
A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate properties:
They invest in various types of properties such as office buildings, shopping malls, apartments, hotels, and warehouses.
REITs make money primarily by collecting rent from tenants occupying their properties.
REITs are required to distribute at least 90% of their taxable income to shareholders as dividends.
REITs allow individual investors to earn income from real estate without having to buy, manage, or finance properties themselves.
PRIVATE EQUITY AND VENTURE CAPITAL:
Venture capital and private equity allow investors to put capital into private companies or start-ups instead of trading shares in public markets.
Both involve investing in private companies.
Both aim to increase the value of the companies they invest in.
Both typically raise money from institutional investors and wealthy individuals.
Both are generally illiquid investments with longer time horizons.
COMMODITIES:
Commodities are raw materials like gold, silver, oil, and agricultural products. Investors can buy these tangible goods, which have real-world uses and consistent demand.
A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type.
Commodities are often traded on exchanges, and their prices are determined by supply and demand dynamics.
Many investors view allocating commodities in a portfolio as a hedge against inflation.
HEDGE FUNDS:
A hedge fund is a limited partnership of private investors whose pooled money is managed by professional fund managers using diverse strategies, including leverage and non-traditional assets, to achieve above-average returns.
They aim for "absolute returns" - making money regardless of market conditions.
They can use strategies like short selling, leverage, and derivatives.
Managers are typically compensated with both a management fee and a performance fee.
They often require high minimum investments and may limit when investors can withdraw money.
CRYPTOCURRENCIES:
Cryptocurrency, an emerging digital currency, is considered an alternative investment outside traditional stocks and bonds. It can offer capital appreciation or passive income through staking rewards.
Cryptocurrencies have shown the ability to generate significant returns in a relatively short period.
Including cryptocurrencies in an investment portfolio can provide diversification.
Some investors view cryptocurrencies as a hedge against inflation.
The volatility of cryptocurrencies allows for speculative trading opportunities.
INVESTMENT NEWS FOR BEGINNERS
HSBC warns on wider risks from private credit blow-ups.
HSBC, one of the world's largest banks, is cautioning investors about increasing risks associated with the private credit market. Private credit refers to loans and financing provided by non-bank institutions directly to companies, often used for growth or refinancing. HSBC is concerned about potential "blow-ups" or failures in this sector, which could have wider negative effects on financial markets. The bank has also flagged risks in commercial real estate, especially in regions like Hong Kong and the UK, and has set aside $1 billion to cover expected credit losses. These concerns come amid economic uncertainty and a more cautious lending environment.
Why this matters to you…
This news can influence interest rates, lending availability, and overall market stability, which affects beginner investment strategies.
Commercial real estate risks could affect UK markets and sectors important to the economy.
The move by HSBC to prepare for losses signals caution, which should be a reminder to avoid overconcentration in risky assets or sectors.
What you need to do…
Stay informed about credit market developments, which might not be obvious but can affect the broader economy.
When choosing investment funds, look for those with strong risk controls that consider credit market conditions.
Be cautious about chasing high-yield, higher-risk investments without fully understanding the credit risks involved.
China’s economy has a few major problems.
China's economy is facing several significant challenges that are currently slowing down its growth. Key problems include a slump in the housing market with falling home prices over many months, which has negatively affected consumer confidence and spending. Consumer spending itself is slowing down, particularly on non-essential goods. China's economy is still growing but at a much slower pace than before, partly due to excessive debt, deflation (falling prices), and an aging population. The government has tried to stimulate the economy by encouraging people to spend more, but many consumers are cautious because of losses in the property market and ups and downs in the stock market. China also continues to rely heavily on exports, which is causing trade tensions, especially with the US.
Why this matters to you…
Trade tensions with major partners like the US may lead to uncertainty and volatility in global markets.
China's economic health influences global growth, commodity prices, and currency markets. UK investors may see indirect impacts through these channels affecting portfolios with international diversification.
What you need to do…
Be cautious about investments tied to China's property and related sectors, as these suffer directly from the housing slump.
Keep informed about economic policies and government stimulus measures in China, which can impact markets.
Learn about the influence of macroeconomic factors like debt levels, population trends, and trade relations on investment decisions.
Is the Dollar losing its crown? How AI and crypto are rewiring global finance.
Traditional dominance of the US dollar in global finance is starting to weaken due to new digital and technological innovations, especially artificial intelligence (AI) and cryptocurrencies (crypto). Experts believe this shift could lead to a future where the dollar no longer has the same central role, but it may still be used in the front-end systems of international finance, while backend transactions are handled differently.
Why this matters to you…
A declining dollar and rising digital currencies could influence interest rates and inflation, as countries adjust their monetary policies to new financial systems.
Understanding these shifts helps beginners develop investment strategies that consider currency risks and opportunities in crypto and digital assets.
What you need to do…
Research how technology is changing how money moves around the world, which could lead to more efficient, cheaper, and faster payment options. This might influence future investment opportunities.
Consider diversifying your investments beyond traditional stocks and bonds, perhaps into cryptocurrencies or global assets that might benefit from these changing dynamics.
ONE LAST THING...
Need a bit of inspiration?
Ollie Perry became an Isa millionaire in 2024 at the age of just 36 by starting early, maximizing his contributions, choosing suitable investments, and having the patience to let compounding work over time. Even if you start later, regular investing and discipline can still make a big difference over the years.
If Ollie can do it, so can you!
Thanks for reading this eighth edition.
REITs, private equity, venture capital, hedge funds, cryptocurrencies…….you can’t say that you are not spoilt for choice when it comes to where to invest.
So, whether you fancy owning a slice of a skyscraper, backing the next tech unicorn, or riding the crypto rollercoaster, there’s no shortage of ways to make your money work.
In the words of Nike - “just do it”!