The Handy Investing Answer Book. Paul A Tucci
Чтение книги онлайн.
Читать онлайн книгу The Handy Investing Answer Book - Paul A Tucci страница 7
Название: The Handy Investing Answer Book
Автор: Paul A Tucci
Издательство: Ingram
Жанр: Ценные бумаги, инвестиции
Серия: The Handy Answer Book Series
isbn: 9781578595280
isbn:
How is the Dow important to our understanding of the activity and performance of blue chip stocks?
The Dow has been tracking the performance of a price-weighted basket of 30 blue chip stocks since late 1928, and is seen by many as a barometer of the overall health of the economy and markets.
How well has the Dow performed since it began?
Through 2009, the Dow has risen in 64% of years, and declined in 36% of years.
Why is ICE so important to the investing community around the world?
ICE is so important to the investing community around the world because now, one-third of the world’s global cash trading flows through its systems; it trades more than 50% of the world’s crude and refined oil futures contracts; it lists 90% of the Dow Jones Industrial 1000 and 78% of S&P 500 listed companies; it introduced 120 Initial Public Offering (IPO) transactions, raising $36.9 billion in 2012; and it currently captures 53% market share of all technology IPOs through the third quarter of 2013.
How important is the NYSE to global equities trading?
The NYSE is very important. With its membership greater than 8,000 listed companies, approximately 40% of all global equities are traded on the NYSE.
How do I begin investing?
Investing begins with an understanding of asset allocations, or how you divide your investment capital into different categories or classes, such as stocks (and mutual funds, foreign stocks, or global stocks), fixed income securities, real estate, commodities (including gold, silver, petroleum, etc.), and cash. It may also include private equity investments in small companies or businesses and foreign currencies, among many other types of investments.
What is a very important consideration when thinking about investing?
One of the most important concepts in investing is to limit your risk through diversification of your investments. The thinking is, if your portfolio is sufficiently diverse, your exposure to the declines in any class of investments is mitigated, as other classes of investments may increase in value, thus protecting your total portfolio.
Why is diversification necessary?
When you invest, it is generally thought that if you spread your investments in a variety of classes, and their values do not move up or down in the same way, this diverse portfolio will have less risk than if you invest all of your money in just one class or type of investment. A diversified portfolio may also have a weighted average risk less than the average risk of each of the investments in the portfolio. It is also accepted that, over time, a diverse portfolio will yield higher returns than one that is relatively less diverse and more concentrated, and will yield a higher overall return than any one individual investment in the portfolio. The main thinking is that positive results of these diverse investments should help reduce the effects of other investments that may decline, as long as your investment choices are not correlated or synchronous. If you have investments in U.S. stocks and Brazilian stocks, and a problem arises in the U.S. economy that may not affect the Brazilian markets, perhaps the investments that are exposed to the U.S. economy may decline, while the Brazilian stocks may not decline, or may even increase.
You should never put all your eggs in one basket, so to speak. Instead, diversify your portfolio with a mix of low- and higher-risk investments to get the best return over time.
What are some other reasons why I should diversify my investment portfolio?
Diversification will not guarantee that you won’t lose money or make big gains with your investments. But it will help you to have a portfolio that matches your appetite for risk, especially if your investment choices are less relatively tied or correlated. The most important point about investment portfolio diversity is that in a perfect world, while the value of your total portfolio will increase less than your best-performing investment, it will never do worse than your worst-performing investment.
What are some important questions to ask myself when managing the diversity of my portfolio?
Some of the more important questions to ask yourself include:
• What capital have I committed to investing in various investments? Am I reinvesting the proceeds? If so, into what investments?
• Is my portfolio out of balance because of this, and into what areas of concentration?
• What is the value of each category of investments in my portfolio, and what would I like it to be today, and in the near- and long-term future?
• What investments have I made lately, and in what categories?
• How have my investment choices and the values created today changed over the past one, five, and ten years?
• Have I kept the losers?
• Have I created more winning investments?
• What investments am I thinking of acquiring next, when, how much, and why?
• Will I sell something to do this, or will I invest new capital into this idea?
What is “correlation”?
Using historical returns on individual investment choices, you can see if two investments move in the same way, using various statistical analysis methods. If two stocks are 100% correlated over some time period, this means they move exactly the same way, given some event or market condition. If they are 50% correlated, then approximately half the time, over some period of time that is analyzed, the two stocks move in the same way, either up or down or even flat, with no change. If the correlation is –50% between the pair of investments, it means that they are moving in opposite directions, so as one goes up, the other goes down. As you build a diverse portfolio of investments, it is generally accepted that good investors, over time, find and invest in different classes whose returns do not move in the same or similar fashion.
What is “concentration”?
Concentration occurs when you invest your capital in a few investment classes or one class. The thinking behind this approach for certain investors is if one investment or investing idea is outperforming other investments, perhaps it is a good idea to focus or concentrate your investment in this idea, in hopes of making relatively higher returns. Of course, your acceptance of this concept certainly depends on how much risk to your portfolio you are willing to accept, as a more concentrated investment choice may carry more risk than one that is relatively more diverse. Some investors even believe it is better to decide to invest their money based upon fewer choices or less diversity, as the returns are thought to be higher.
How often should I check or analyze my portfolio to make sure it is properly allocated?
You should check your investment portfolio to make certain it is properly balanced at least quarterly—if not monthly—in order to ensure that your investments are not too synchronous or correlated. Of course, this allocation depends on such factors as how much you have to invest, what your financial goals are, how СКАЧАТЬ