Becoming an investor in a week
Investing is an effort to make a profit, buying, holding, and then selling financial instruments. The length of the hold of a financial instrument depends on the type of investment. For a very long time, investing has only been away for a certain upper class to get rich, because investing has required a lot of start-up capital. Today, however, investing is increasingly accessible to everyone. There are also many motives for investing. It can be a way to prosper and have a financially independent life, it can also be a way to ensure posterity prosper or secure your own pension.
There are thousands of information about investing today that are available to everyone. On the Internet alone, you can find information about investing. The placement is also made into podcasts and literature, for example. There are a lot of preconceptions about investing. And many people’s investments is ending with these three simple things: “1. There is not enough information, 2. There is not enough money, 3. There is not enough time (Mähkä 2019,17).” However, you can become an investor regardless of gender or professional status. The information is easy to find, for example, Mimmit sijoittaa is a podcast a well-created podcast for a beginner. For example, you can start with 20 euros a month. Investing takes just as little time as you want it to take.
“Almost one in three Finns have fund investments and almost one in five owns shares in a listed company directly, The Financial Sector, Saving Finns, Credit Use and Payment Methods Survey 2017.” Why do many start-up investors still seem intimidated by investing? It’s easier to make a €50 impulse purchase, but €50 on the stock exchange to make money seems scary? Investing is also a lot of practical learning. Sometimes you have to pay for the lessons, but it will pay back in the future.
Start now. The easiest way to invest is on a long-term basis in an index, i.e. a fund, for example. We’ll open more of this later. This is the safest way to start investing and everyone can afford that.
If you trust that economy will also be upbeat in the future, profit is certain and more likely than prosperity in the lottery.
A lot of people are afraid to invest in the fall season because the best hold has already gone. Whereas during the boom there are fears that everything will collapse down, just when you have invested money in it. If you invest in an index, the starting time does not matter, because, in order for money to generate enough returns, the investment must be in investments for a long period of time. This is based on a dull-sounding but very important interest rate on the phenomenon. When you invest in a fund, and the longer you keep money on the stock exchange, it starts to accrue interest. This interest rate, on the other hand, also accrues interest, and the interest rate accrues interest. This is called compound interest. Albert Einstein came up with a simple formula for the compound interest called “the rule of 72”.
The first few years are slow, but the interest rate phenomenon is like a snowball effect, that is, the longer the money is kept on the stock exchange, the more profit it generates exponentially.
Fund investing is a largely passive investment. It does not require active investment from the investor, but the funds are good for longer-term investment. However, there may be active and passive funds. Funds are like a hash machine. It includes diversified companies, and the investor does not have to make a share pick, but the fund portfolio does so on behalf of the investor. In the funds, you can access the shares with a small amount of money that you would not be able to access by direct share investment. “The investment fund itself is an investee. It is managed by a management company or bank that raises a pile of money from investors to buy shares, bonds or even raw materials in accordance with the fund principle” (Mähkä 2019, 105). The fund can be selected according to region, industry, size, ethics, or even the fund’s specific investment style, such as value shares, dividend companies, and growth shares.
Funds are active and passive. Those who are passive from funds should be favored, as an active fund means that it has an active portfolio manager, i.e. the person to whom the work is paid. This person is not a fortune teller but manages the fund according to the framework defined by the fund, i.e. the investment plan and the ultimate purpose of the fund. In a simplified way, the fund manager tends to get a better result than the index he tracks. Active funds can have high costs, so it is worth looking at the funds critically, as the costs can eat into any profits. The active fund, therefore, has a small chance of obtaining a higher rate of return than the index.
A passive fund, on the other hand, tracks the index of its choice, it does not have an active portfolio manager in the background, which means that the costs are low, if not insignificant. For example, OMX Helsinki 25 is a listed index fund that invests in the most traded shares on the Helsinki Stock Exchange.
When it comes to investing, for more of us, those who do not know about investing are the first to think of the issued shares of a limited liability company. The shares are publicly traded securities, the value of which is determined entirely by supply and demand. By buying shares, you buy a stake in the company in which you also acquire decision-making power at the Annual General Meeting and a share of the proceeds in the form of dividends. Simply explained, there are two ways to make money with shares: Get dividends, which companies usually pay once a year, and if the value of the share you buy goes up on the stock exchange, making a profit. On the other hand, if the company does not make a profit or, in the worst-case scenario, makes a loss, you may lose your investment altogether. If the share price drops by 100% the company is bankrupt and you can say goodbye to the family savings.
Stock exchange shares have been the most profitable investment in the long term. Between 1802 and 1997, US equities have yielded an average of 8.4% a year. The Helsinki Stock Exchange has produced an average of approximately 10% per year without dividends between 1920 and 1999. Stock exchange shares carry risk despite a good return history. By investing in shares, it is possible to lose money, as the price of the shares owned is determined by the average of the market’s opinions. If the outlook for the company you own deteriorates or something else negative occurs, the value of your ownership will fall almost immediately on the stock exchange. (Sijoitustieto.fi)
When buying shares, it is very strongly recommended to diversify the investment into several shares in different sectors, which reduces the risk of the investment. Metaphorically, if you put the eggs in more than one basket, you will avoid all of them falling apart as a result of one basket falling.
It is also possible to short the shares, which is the exact opposite of buying the stock, that is, if the share price falls, then you make a profit. Simply explained, you borrow the stock when the share price drops you sell it off and buy it back at a discounted price. You return the stock back to the borrower and keep the winnings. The profit thus consists of the difference between the selling price and the purchase price minus the expenses. (Osakesijoittaja.fi)
Shorting may sound like a very good solution, especially in difficult times for the economy, but it’s worth having in mind that the journey of more stocks is upstart in the long run. Shorting is much riskier because the stock can rise endlessly and there is no bankruptcy to stop it. Shorting recently became a big topic of discussion through Gamestop stock (GME). One Reddit user noticed that Gamestop stock has been shorted by huge amounts of big funds, after which he launched a huge movement urging people to buy huge amounts of that stock with the aim of inflicting huge losses on large funds and avenging years of stock market manipulation. The plan was a huge success and at best the value of Gamestop stock rose from $18 to $483, causing massive billions in losses for funds.
You could write a book about Gamestop and short, but let’s also go through other forms of investment on the market.
The cryptocurrency, or digital currency, took off in 2009 after Bitcoin entered the market. The revolutionary idea was originally intended to be a protest movement against the traditional banking sector, to make financial transactions go without a third party, namely financial institutions and banks. (Lauri J. 2021).
Each of the cryptocurrencies is based on blockchain technology, which, in other words, is distributed accounting. The blockchain can be simply explained: person A wants to send cryptocurrency to person B. The transaction is called a block. The network in the blockchain automatically checks and accepts with each other that A has enough money in his wallet to send. The block is accepted into the blockchain and the cryptocurrency is transferred to B. (Osakesijoittaja.fi)
Investing in cryptocurrencies became a huge trend phenomenon because of their huge volatility, prices can vary by tens of percent a day and it has led many beginners to invest in it in search of big profits. As an example, the cryptocurrency “Shiba inu” has risen by more than 14.044.988% in the last year, meaning that with a small investment of $100, you would have more than $14 million. Investing in crypto is worthwhile if you believe in the future of digital currency.
Cryptocurrencies also raise a lot of criticism regarding drug trafficking. Cryptocurrencies make it possible to pay anonymously online without fear of being caught because it is almost impossible to trace the transfers.
Anyone can invest at low risk. There are also higher-risk forms of investment and it is worth familiar with them before investing well in order to gain confidence in investing. Investing can turn into a hobby and definitely invest in what you know the most and what interests you the most. Always do your own research! The investment world is vast, you don’t need to know everything, but when you jump in, you can see how addictive it can be. Still, remember that the most common rule you hear from an “investor gurus” is that only invest the kind of amount you’re willing to lose.
LIST OF REFERENCES
Mähkä, M. Lehtipuu, U. (2019) Sijoittajaksi 7 päivässä. Helsinki: Almamedia. Read on 29.11.2021
Sijoitustieto, 5.6.2014. Sijoittaminen osakkeisiin – yleistä. Read on 28.11.2021
Osakesijoittaja. Shorttaaminen, eli lyhyeksi osakkeiden myynti. Read on 28.11.2021
Lauri, J. Missä on herra Nakamoto?. Read on 27.11.2021
Osakesijoittaja. Kryptovaluutat. Read on 28.11.2021