The shortest introduction to Investing

DISCLAIMER: This is my personal and honest opinion on how to invest if you're an absolute begginner with a small amount of money to invest. Before you even start, remember: investing is long term planning. If you think you'll need to use your savings in the next 10 years, keep them in a savings account.

Two ways to invest:

  1. directly (buy shares, bonds, etc);
  2. indirectly (through funds).
Only reasonable option for small investor: funds.

Two type of funds:

  1. Active (managed by a team), management fees increase the costs;
  2. Passive (track an index), extremely low fees.

There is the question whether a managed fund can out-perform the market in the long term. Many experts believe this is not possible. From this point of view, passive funds are the best option, their strategy is to follow the market not out-perform it. They have the advantage of being safer and cheaper than managed funds. However, this may be secondary because there are all kinds of indices and hence passive funds. Some are riskier than others and thus some have higher returns than others. Just like active funds. In the end, some form of management will need to be done. What you should keep in mind is that it's never worth paying high fees for an active fund, much less a financial advisor.

For a small investor, there are different options that make sense:

  1. an active fund with low costs and relatively low risk;
  2. a self-managed portfolio of passive funds including a reasonable ratio of bonds and equities.

Why choose Vanguard Investor: cheaper provider of both of the above. If you prefer to manage your own portfolio, take a look at Vanguard's Target funds. These are a good reference to use when making your own portfolio. As you can see in these funds, depending on how long you plan to let your money grow, you should have a larger proportion of equities for a very long term investment or a larger portion of bonds for the relatively shorter term.

Finance vocabulary

Click on the links to learn more:
Bonds
Shares = equities = stocks
Mutual Funds
Index Fund
ETF (Exchange traded fund)

Comments

Post a Comment

Popular posts from this blog

Addi vs. Knit Pro: a review

The short version of this post: The difference between Addi and KnitPro is relatively small, so you'll be happy with which ever you buy. I personally prefer Addi Lace. KnitPro Synfonie and Nova being second best, in my opinion. Do not buy KnitPro cubics. Basic Addi have rounded tips that make knitting (knit and purl) easier and faster, but knitting lace (making increases and decreases) a lot more difficult. So I do not recommend them (even though I use these needle the most often), because sharper tips are simply more versatile. Metal vs. wood or bamboo: metal has less friction, thus knitting with this is faster and more pleasant. But, for the same reason, stitches are more prone to drop off metal needles. I'd recommend wood for beginners, metal for more experienced knitters. Metal needles are less prone to breaking. Long story told short, I own both a set of Knit Pro interchangeable Symfonie wood needles and the Basic set of Addi interchangeable metal needles. I also...
Read more

Converting patterns for Portuguese-style knitting: a tutorial, part 1

A few years ago I wrote a post about converting increases and decreases from German or English-style knitting to Portuguese-style knitting. Do you need to do that? Not really, there is nothing to stop you from just going ahead and knit a pattern exactly as it's written. Then, why would you want to do that? Because most patterns written for German or English-style knitting include as much knit stitches and as little purl stitches as possible, since the former are much easier to work than the latter when you keep your yarn behind the needles. On the other hand, when working in Portuguese-style, you keep your yarn in front of the needles and thus you would like to purl as much as possible. The best example of this is, of course, garter stitch, as used in the microplastic ban pattern . There are two ways of converting this pattern to Portuguese-style: Straight-forward conversion: use the stitch dictionary and invert the order of stitches . Then, Increase row: k2, yo, knit to end. D...
Read more

Kissing fish

Image
I have already written quite a few posts on socks and even a few on sock heels in particular. And this is another one to add to the list. The Fish Lips Kiss Heel by Sox Therapist is fast becoming the most popular patterns on Ravelry. This is not a standard pattern but rather a (very long) full tutorial on how to knit almost any sock integrating this heel including extra advice on making sure the sock fits perfectly. Costing only a little bit more than $1 USD, it is not free but a real bargain. What is the Fish Lips Kiss Heel? You may want to know before spending your money on a pattern you may very well dislike. It is basically a short-row heel method that uses a very particular type of stitch replacing the traditional wraps-and-turns. The author of this pattern calls them twin stitches and there are two of them (or more exactly there are two ways of working the same twin stitch). The knit twin stitch (a twin stitch worked on the right side): and the purl twin stitch (a...
Read more