Finance is complicated for one reason: so that people outside of the industry don’t think that they can do it 🤣
In all seriousness, with our powerful brains and infinite creativity, we’ve created so many assets and methods in finance that it’s almost impossible to fully understand everything.
However! If you’re looking to do some small personal investments, then it doesn’t really have to be that complicated.
Here are some of the financial terms that you may have encountered and haven’t been able to understand even after Googling them!
I’m sure you’ve seen the sentence “Remember to do your own due diligence!” more than a couple of times. Literally every single finance article that gives advice begins or ends with that sentence, so what does it mean?
Simply put, doing due diligence before buying into a stock means to know exactly what you’re buying.
Just like the aunties who check every piece of vegetable in the basket before buying, be sure to check every bit of information that is available to you!
Reviewing all the information you can get means you fully understand the company and it’s business, and puts you in an excellent state of mind to react to any changes in the market.
When a company decides to go public, they do so through an Initial Public Offering (IPO). This is when a company directly sells a stake to investors in exchange for cash.
Two other phrases that are commonly thrown around are “primary market” and “secondary market”.
IPOs happen in the primary market and subsequently, investors trade these stocks in the secondary market.
Basically, a company has little to no business in the dealings amongst investors in the secondary market after the IPO. Kind of like how some companies take forever to reply to customers after they’ve sold you their product 🙄
And now we have one of the few things in finance that seems to confound people. So we’re going to try explaining it.
A real estate investment trust (REIT) is a unit trust that invests in real estate.
Unit trusts pool money from investors to invest in certain assets. And in terms of REITs, that asset is real estate.
They use this money from investors to buy and operate real estate to generate income (usually from rental or operations).
And what do they do with this income? They give it back to you….the people.
REITs are especially attractive to value investors as they usually distribute at least 90% of income so they might be something to look into if you’re a value investor!
Ever looked at a menu at a restaurant where everything looks so good that you kind of want to order everything? Well, now you can!
Exchange traded funds essentially allow you to own a little bit of everything you’re interested in. Take the Straits Times Index (STI), Singapore’s 30 largest and strongest listed companies, for example. It would be a good idea to invest in these companies if you’re a value investor or just starting out as they are “safer”.
You could look at the index and buy stocks in these companies in the proportions of the STI individually, which is an execution nightmare. Or you could simply invest in the STI ETF and have them do it for you.
But that’s not all. The main advantage of an ETF is that it allows you to invest in the companies and industries you’re interested in even if you don’t have enough money to buy all those stocks.
Think of it like a sampling platter for the menu instead of having to pay for ordering the entire menu!
Robo advisors may have gained traction in recent years but they’ve actually been around since the ‘09 recession.
Imagine a robot that prepares dinner for you every night. Not only does it take into account what you like or dislike, it also knows what to prepare when it’s raining or when you’ve had to OT, or when the chicken isn’t really fresh today.
To a lesser extent, that’s what robo advisors aim to do with stocks. Companies like Stashaway use their own unique algorithm that determines your stock portfolio based on your risk profile.
Now, with the way robo-advisors work, they’re more suitable for long-term investments but might not be suitable for those who want to make short-term gains quickly.
The Best Time is Now
If you’re looking to learn more about investing or where to begin, be sure to speak to our Sharers in the Finance category!
But of course, before putting your money into any investments, remember to do your own due diligence 😉
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