Basic Principles Of Investing And What To Consider

You need to invest your money in a safe place that generates income. In other words, you need to invest. For example, you can deposit your money in a time deposit account at a bank and earn interest income.

Apart from depositing your money in a bank, you can invest it in a wide variety of investment instruments. For example, real estate such as land and houses are also investment tools. Just as you can buy a house or land with your money, you can also invest by buying foreign currency or gold.

On the other hand, by investing your money in capital markets, you can invest your savings more flexibly in instruments with different risk-return components. To do this, simply choose one or more of many investment instruments such as shares, private sector bonds, government bonds, and investment fund participation certificates.

The most important thing when deciding to invest is how long you can keep your money in that investment. Some investments provide good returns in the long term but are not profitable if converted into cash in the short term. 

Some investment instruments are more suitable for savers who want to make short-term investments. Therefore, it is useful to determine the maturity of your investment according to when you will need your money.

Of course, you wouldn’t consider investing your child’s next month’s school installment in stocks, right? That’s why we will examine the basic principles of investing and what should be deducted before investing.

What Is Investing And How To Invest For The Long Term?

When investing your money in an investment instrument of your choice, the risk to be taken should be carefully considered and then the decision should be made. But don’t worry. This is not that difficult.

The important thing for investing is to start. You can start trying different investment instruments with a small amount of money that is not vital to you. 

Also, do not forget to ask questions and do research when investing. You will learn more over time by asking questions to the right people and institutions. Apart from this, you can also benefit from the information on the websites prepared by the institutions for you.

Will we invest in fixed-income instruments, variable-income instruments, or both? First, we need to decide this. Bonds and financial bills of private sector companies issued with fixed interest rates, as well as instruments such as government bonds and treasury bills, are fixed-income, and both the amount of interest and the principal and interest payment periods are predetermined. 

The return on the stock is not known in advance. The return we will receive as dividends depends on whether the company makes a profit, whether it decides to distribute dividends every year, and the legal regulations on this subject, and the return we will obtain as capital gains depends on the market price at the time we sell the share.

What Are The Types Of Investments And Which One Suits You?

An investor can protect himself against total risk by distributing his money among various investment instruments, hoping that if he loses money on one investment, he will make money on another. This is called diversification.

The basic idea here can be summarized as “Do not put all your eggs in one basket”. With this method, protection is provided by distributing the unique risks of investment instruments, but it is not possible to get rid of the risks that affect the overall market with this method.

While diversification does not mean that your investment will not be affected by market declines, it will still help you balance risk against fluctuations.

You can convert a share traded on the stock exchange into money by selling it at any time, as long as there are buyers. However, if the market price at the time of sale is lower than the purchase price, there is a loss. You can avoid this loss by waiting for the market price to rise. 

Or, in cases where the markets are constantly declining, you can prevent your losses from growing further by selling your stocks. You can also convert private or public sector bonds and treasury bills into cash at any time by selling them at the current sales price in the market.

However, if there is a high demand in the securities markets (stock exchange) for these securities that you will dispose of, that is, if the liquidity capability is high, the conversion into cash will be easier.

How To Evaluate The Risk And Return Relationship?

In general, it is possible to categorize the risk in capital market instruments into two main groups: Risk arising from general factors affecting all financial instruments.

Conditions in global markets and macroeconomic conditions such as country-specific national income growth rate, foreign trade balance, current account balance, budget balance, interest rate, inflation rate, and foreign exchange prices are some of the important factors affecting the risk.

For example, while a recession in the overall economy is a factor that can affect all financial instruments, climatic conditions are a risk factor that mostly affects the share prices of businesses in the agricultural sector.

While it is possible to avoid the risk arising from climate conditions by not buying shares of enterprises in the agricultural sector, it is generally not possible to avoid the risk arising from economic stagnation by making a share-based selection.

There are two types of risks in debt instruments such as bonds and financial bills issued by private sector companies and bonds and treasury bills issued by the state. Risk, in its simplest sense, is the danger of losing the deposited money or falling below the deposited amount.

Risk arises from the uncertainty of future events. Apart from the risk of non-repayment of the principal, many risks affect the return of the investment instrument, such as changes in interest rates or exchange rates.

As a general market rule, the higher the risk of an investment, the higher the return promised for that investment. In a high-risk investment, if things go well and the promised return can be achieved, it is great. 

What Do Long-Term Investment Strategies Include?

The amount you invest will affect your choice of investment instruments. A minimum amount is set for you to invest in some securities. If your savings remain below this amount, you cannot invest in that vehicle immediately. For this, you need to save some more money.

How long you wait depends on how much you regularly save each month. If you want to invest in shares, you cannot buy any amount you want. The unit of exchange on the exchange is the lot, and the standard “lot” size is one share with a par value of $1. The amount of time you invest is as important as the amount you invest. 

The length of time you invest depends on when you will need the money. If you want to convert a long-term investment into cash before its maturity, you may incur a loss. If you will need money soon, you should choose short-term investments.

What Should Be Considered In Short-term Investment Strategies?

Making a short-term investment decision may be a difficult issue without any help, and you may need someone who can help and guide you. In this case, it becomes important to receive service from the right institutions and people. 

When making short-term investments in the capital markets, only consider the recommendations of investment institutions authorized by official institutions to provide short-term investment consultancy services, and do not rely on the comments and evaluations of people and institutions other than these.

It is an undisputed fact that with the widespread use of the internet and social media in our modern world, there has been a significant increase in the number of people and groups of people using such channels for malicious guidance.

Keep in mind that people who share such posts may not always have good intentions and may aim to manipulate you according to their position. For example, individuals or groups giving short-term investment advice on internet forums, social accounts, or groups while directing them to buy a denominator, or sell the same denominator from their accounts, and as a result of these transactions, short-term investors who rely on these guidance while profiting from their positions, suffer losses. 

See you in the next post,

Anil UZUN