After covering the mistakes to avoid in a COVID-19 bear market here is a study of investment into Equities Gold and Treasuries over the past 30 years. This is a simulation of what would have happened if you invested at ANY point during that time in Stocks & Gold or Stocks & Bonds. Read how to Invest in Gold and Stocks to generate long term returns.
There is lots of ways to quickly lose money – online casino, penny stocks, leverage e.g. spread betting or CFDs, single name stocks during a bear market – look at airlines or Macy’s (remember asset allocation not stock picking drives 90% of your returns!) or even entire high risk sectors (especially when leveraged!). Yes, an Oil ETF has fallen overnight by 99% in March.
It’s going to be painful and it will take you a long time to recover the money back. Remember when you lose 25% it takes 34% gain to get back to your starting point. In a recession making actively making money (not speculating) in order to invest it and generate #passiveincome is even more difficult.
How about relatively safe ‘entire market’ stock ETFs?
Now, look at the above chart and read the analysis below:
How do I hedge the downside? Traditionally you would diversify with a Fixed Income investment e.g. Treasuries. However, opportunity cost (not generating any income since most Treasuries yield below 1%) is a problem. But it gets even worse. If you have e.g. 5 year investment objective and your bond portfolio is not matched (e.g. you hold longer duration treasuries to better hedge downside risk) you can make losses.
https://preview.redd.it/b5os2k1zm0v41.png?width=1547&format=png&auto=webp&s=66bbea937647379e401b582c39d0a1ce1d9b25f0
Find the rest of the analysis of how to invest in Gold and Stocks here
submitted by bankeronwheels to Gold [link] [comments] Warren Buffet's “Rule No. 1: Never lose money”
Compound interest is when you earn money, or interest, on the interest you’ve already made on an initial investment. If you lose money the opportunity is lost. Einstein famously said compound interest is the 8th wonder of the world.There is lots of ways to quickly lose money – online casino, penny stocks, leverage e.g. spread betting or CFDs, single name stocks during a bear market – look at airlines or Macy’s (remember asset allocation not stock picking drives 90% of your returns!) or even entire high risk sectors (especially when leveraged!). Yes, an Oil ETF has fallen overnight by 99% in March.
It’s going to be painful and it will take you a long time to recover the money back. Remember when you lose 25% it takes 34% gain to get back to your starting point. In a recession making actively making money (not speculating) in order to invest it and generate #passiveincome is even more difficult.
How about relatively safe ‘entire market’ stock ETFs?
How you can lose money investing in Stock ETFs
https://preview.redd.it/lce8vgasm0v41.jpg?width=1536&format=pjpg&auto=webp&s=3e873f33a6ca274ebbbc9932b4719b3e62386111
Now, look at the above chart and read the analysis below:
How does it work?
- I assume that you want to fund a project in 5 years and I look at the last 30 years as guidance. You never know if you are in the peak or trough of the stock market
- I also assume you don’t have time to gradually deploy and want to get returns in 5 years
- OK, so let’s look at this scenario – you may have invested at any point during the past 30 years (at the beginning of any quarter) and held the exposure for 5 years (any income is reinvested)
- Each blue bar is the annualised cumulative return over the 5 year period at the point of exit (when he/she sold the exposure) of the S&P 500 Index
- Look at the chart above. If the investor sold his exposure in June 2003 (i.e. 5 year after intial investment) he would have generated an annual return of c. 6%.
- By investing 100 in June 1998 would have got back 133 after accounting for the total return (100*1.06^5) in 2003
- You can see a fundamental problem investing in stocks without hedge – almost the entire decade from 1997 until 2007 was ‘lost’ apart 2001 – 2003 period
How to make money and stay safe
Assuming you are/ aim to invest in stocks. There are two way of going about it in this market:1. Be unhedged but cash-rich
There are strategies you can deploy such as the COVID-19 bear market to lock S&P 500 returns no matter how the S&P will behave this year. The condition is having some cash on the side to invest should the stock market dive further, or2. Hedge the downside
If you want to deploy most of your money to work without having significant cash on the side you’d typically hedge your Equity exposure by invest in some form of Fixed Income products e.g. Treasuries.
How do I hedge the downside? Traditionally you would diversify with a Fixed Income investment e.g. Treasuries. However, opportunity cost (not generating any income since most Treasuries yield below 1%) is a problem. But it gets even worse. If you have e.g. 5 year investment objective and your bond portfolio is not matched (e.g. you hold longer duration treasuries to better hedge downside risk) you can make losses.
The shiny alternative - the case for Gold
https://preview.redd.it/b5os2k1zm0v41.png?width=1547&format=png&auto=webp&s=66bbea937647379e401b582c39d0a1ce1d9b25f0
Find the rest of the analysis of how to invest in Gold and Stocks here
