When researching to start trading, the majority of people just check some of the basic guides. This is completely understandable; after all, you start from the basics, and the majority of people just read the instructions to see how to turn something on.
After a while, however, you might decide to dig a bit deeper and start covering topics that previous guides have just glossed over. With that in mind, here are some of the investment tips that really need to get more spotlight (even in beginner guides).
1. Investing in S&P 500 companies is your best bet
If you’re already very affluent, chances are that you’re keeping the majority of your investment money in these companies. The problem is that people who are new to this field usually see low returns and determine that it’s just not worth it.
You see, it’s not that it’s not worth it; it’s just that these people invest in order to earn money, not just as a store of value. Now, since they’re not investing a huge amount proportionally, this income will be quite moderate (even small).
The thing is, however, that this is the safest thing you can do with your money. Sure, these companies can fail and fall, but when this happens, the whole economy goes down, and no stocks are safe to begin with.
The process of investing in S&P 500 companies is very simple, and in a guide by Techopedia, Rob Griffin says that investors have benefited from exposure to the S&P 500 as the index has returned 18.86% over the past year, according to S&P data to the end of January 2024.
One of the biggest benefits of investing in S&P 500 companies is the fact that its index covers approximately 80% of the available market capitalization in the US. In other words, you’re spreading the risk over the biggest, most reliable companies in the biggest economy in the world. As we’ve already said, if all of these companies fail, you have more than just your investments to worry about.
Many companies in the S&P 500 also pay dividends, which means that you have a simple way to create a reliable passive income. Just keep in mind that this is always proportional to the amount of money that you can afford to invest.
2. Consider factor instead of asset class diversification
In theory, diversification just means putting your money in different assets. In a way, just buying two different stocks would already be a diversification, but the majority of guides (and people’s understanding of it) don’t end here.
When they say diversification, what the majority of people think is keeping a bit of money in stocks, a bit of money in commodities, and keeping some money in alternative funds (potentially even crypto).
Still, is this different enough?
Some people don’t believe so, which is why they prefer to pick assets according to their factors and not just their class. This minimizes the correlation between the assets that you’ve spread your money across, increasing the overall safety of your portfolio. In other words, you’re improving your level of risk management and making your risk exposure more systematic.
The transparency of these investments is higher by default. Why? Well, because the value is not tied to a particular brand but actual quantifiable characteristics.
So, what are some of these factors that you can invest based on:
- Value factor: This is a scenario where you choose where to invest based on the price-to-earnings or price-to-book.
- Momentum factor: Here, you’re investing in securities that have performed well in the past, hoping that they’ll carry on with the trend.
- Low volatility factor: This way, you’re investing in assets that have proven to have lower volatility.
There are many other factors worth considering, like size, quality, etc.
3. Gold and silver are not the only precious metals worth buying
The majority of guides on diversification will talk about how you need to keep 10-15% of all your investment money in commodities and precious metals. After all, they’re quite stable; they have a weak (even opposite) correlation with the majority of other asset classes, and, in a moment of crisis, you can just stuff gold coins in your backpack (or pockets) and leave. This last part is (sadly) sometimes relevant, even in 2024.
When talking about buying precious metals, everyone has their eyes set on silver and gold. They start by googling the price of gold, places where they can buy gold locally, or even trivia like how much one ton of gold is worth in 2024.
This is only natural, seeing as how these are the two biggest assets in the game. Not only that, but they’re the most recognizable and have intrinsic value. They’re used as either a currency, an asset, or a store of value for the entire history of humanity
However, gold (or even silver, for that matter) is far from being the only precious metal worth considering. What about platinum and palladium?
These two have a high (and increasing) industrial demand. Moreover, since one of the fastest-growing industries is green technologies, it’s important to mention that platinum and palladium are used in things like catalytic converters and hydrogen fuel cells.
Keep in mind we’re by no means suggesting that investing in gold or silver is a bad idea. It’s just that other options exist, as well (and a lot of guides pretend like they don’t).
4. Alternative investments are not as good as you think
Whenever there’s a guide on investing, the majority of it comes down to stocks, real estate, cryptocurrencies, and precious metals. There’s a method to this madness. Namely, these four asset classes are the best-known, and they’re useful to the majority of the population
You see, alternative investments are an amazing idea, but there’s a reason why they’re not as popular.
For instance, one such asset is designer bags. While these bags are a great store of value, since there’s a limited number of bags in most series, their market value is, more or less, capped. However, a lot of people cannot afford to buy a designer bag as their first investment, while almost anyone can buy a small number of stocks, a fraction of BTC, or a few gold coins.
Then, there’s the issue of collections and art pieces. Both of these can be unique and incredibly profitable, but the truth is that they require so much knowledge (far more specific and in-depth knowledge) than investing in stocks or crypto. You need to actually be an expert in the field or have someone like that on your retainer.
Ultimately, there’s one massive problem that all of these alternative investments share – lack of liquidity. Namely, while, technically, you can sell them at any point, this is far harder than just converting crypto or selling a stock via an app. You need to find an actual buyer and, despite professional evaluation, still negotiate the price.
In order to efficiently invest, you need to go a bit deeper
As we’ve already mentioned, there’s a reason why the majority of guides merely scratch the surface – it’s all you need to get started. Still, if you’re really serious about investing and diversifying your resources, you need to learn more than that. With these four tips, you’ll already be slightly better off.