User's blog

Month: March 2023

  • Stock market 101: Understanding the basics of the stock market

    A stock market is a place where people buy and sell shares of publicly traded companies. These shares represent ownership in the company and can increase or decrease in value based on various factors such as the company’s performance, economic conditions, and investor sentiment.

    When a company goes public, it issues shares of stock that investors can purchase. People can then buy and sell these shares on the stock market. The stock market provides a platform for investors to trade these shares with each other.

    How does the price of a company’s stock move?

    Supply and demand determine the price of a stock. If more people want to buy a stock than sell it, the price will go up. If more people want to sell a stock than buy it, the price will go down.

    The bull represents a growing market while the bear represents a falling market. The name comes from the way these animals attack.

    There are two main types of stock markets: primary and secondary. The primary market is where new stocks company issue and sell to the public for the first time. The secondary market is where investors trade previously issued stocks.

    Overall, the stock market plays an important role in the economy by allowing companies to raise capital and investors to participate in the success of these companies.

    How’s the stock market related to the economy?

    The performance of the stock market can be an indicator of the health of the economy, as it reflects the collective sentiment and expectations of investors about the future prospects of companies and the economy as a whole.

    When the stock market is doing well and prices are rising, it often indicates that investors have confidence in the economy and expect companies to perform well in the future. This can lead to increased investment, job growth, and economic expansion.

    But, when the stock market is performing poorly and prices are falling, it may indicate that investors are pessimistic about the economy and the future prospects of companies. This can lead to decreased investment, job losses, and economic contraction.

    In addition, changes in the economy, such as interest rates, inflation, and government policies, can also impact the stock market. For example, if the Federal Reserve raises interest rates to combat inflation, it may lead to higher borrowing costs for companies and decrease their profits, causing their stock prices to fall.

    Therefore, the stock market is an important component of the overall economy. It can be affected by, and also impact various economic factors.

    I will cover more on the main types of stock exchanges in the US and globally in my next post. Thanks for reading!

    If you want to watch my videos on the same topics, you can check out my Youtube channel here. https://www.youtube.com/channel/UC1wFKF1FTBI90qdn4HH2QhQ

    Credit: Images from Freepik

  • Why did SVB collapse?

    So, there’s been some big news in the banking world. First, Silicon Valley Bank, which had a lot of high-profile tech investors as clients, collapsed on Friday. Federal regulators have taken over the bank since then. It’s actually the largest U.S. bank to fail since the 2008 financial crisis. Then, on Sunday, regulators started worrying about New York’s Signature Bank. This bank had a lot of money tied up in the unpredictable cryptocurrency market.

    Both Silicon Valley Bank and Signature Bank are under the Federal Deposit Insurance Corporation (FDIC) control. This happened after Silicon Valley Bank experienced a run on the bank last week, with people withdrawing billions of dollars in deposits.

    men with finance business report and money vector illustration

    The different business model of this bank

    Do you know how Silicon Valley Bank wasn’t really a name you’d hear outside of Silicon Valley and the tech industry? Well, that’s because their clients were mainly venture capital firms, startups, and wealthy tech employees. They were in the game for around forty years and even managed to compete with big financial institutions. But in the end, SVB collapsed in just a few days.

    Apparently, around 90% of SVB’s accounts had over $250,000 in deposits, which is higher than most banks. This means most of their deposits weren’t backed by government insurance, according to a report. Also, experts pointed out that SVB’s business model was more like a local bank from the 1800s or 1900s, focusing on deposits and local customers, while bigger banks had more diverse funding sources and customers.

    In 2020, SVB’s deposits surged, but unfortunately, they invested those extra billions in long-term Treasury bonds just as the Federal Reserve raised interest rates. This led to a decline in the value of government bonds, and more depositors withdrew their money. Last week, SVB announced a loss of $1.8 billion from selling some of its bond holdings, leading to a run on the bank. Federal regulators ended up taking control of the bank last Friday.

  • Stock market Investing 101

    In today’s post, I will talk about what you should consider if you haven’t started investing in stocks yet or if you are a beginner investor.

    Why do people fear investing in stocks?

    Before we do that, let’s look at the reasons why people may be afraid to invest in stocks. Here are some of the most common reasons:

    1. Lack of knowledge: Many people are afraid to invest in stocks because they don’t understand how the stock market works or how to analyze stocks. They may feel overwhelmed by the amount of information available and worry about making a mistake.
    2. Fear of losing money: Investing in stocks always carries some degree of risk, and many people are afraid of losing money. They may worry about a stock market crash or about investing in the wrong company.
    3. Past negative experiences: Some people may have had negative experiences with investing in the past, such as losing money or being scammed by a fraudulent investment scheme. These experiences can make them hesitant to invest in stocks again.
    4. Perceived lack of control: Investing in stocks can feel like a gamble to some people, and they may worry about not having control over their investments. They may feel more comfortable with traditional savings accounts, where they feel they have more control over their money.
    5. Peer pressure: Some people may feel pressure to invest in stocks because of their friends or family members, but they may not feel confident in their ability to make good investment decisions.

    So what is the solution?

    Infact, investing in stocks for long-term growth can be a great way to build wealth over time if done correctly. By following some simple tips, you will mitigate the risk associated with investing and will grow your wealth over time. Here are some tips on how to invest in stocks (and other assets) for long-term growth:

    1. Set your investment goals: Before you start investing in stocks, it’s important to define your investment goals. Do you want to save for retirement, a down payment on a home, or another long-term goal? Understanding your goals can help you create a long-term investment plan.
    2. Determine your risk tolerance: Investing in stocks comes with risk, and it’s important to understand your risk tolerance before you start investing. Conservative investors may want to focus on blue-chip stocks with a history of stable returns, while more aggressive investors may be comfortable with higher-risk, high-growth stocks.
    3. Research companies and industries: When investing in individual stocks, it’s important to research individual companies and industries to make informed investment decisions. Look for companies with strong financials, competitive advantages, and growth potential, and consider investing in industries that are poised for growth in the long term. This does require quite a bit of research by looking at companies’ financials. For conservative investors, it is best to start with a broad-based index fund or an ETF. By setting up monthly or weekly contributions, you can ignore market fluctuations. Predicting the future of a specific company is uncertain. Thus this risk is much higher compared to investing in a fund, which is a pool of many companies from different sectors.
    4. Build a diversified portfolio: Diversification is key to managing risk and maximizing returns when investing in stocks. Invest in a variety of companies and industries to spread your risk (through index funds or ETFs). Vanguard, Charles Schwab, and Fidelity are all good brokerage companies offering index funds. It’s important to research and compare the fees, historical performance, and other factors of different index funds and providers before making any investment decisions. Also, consider adding other asset classes, such as bonds and real estate, to your portfolio.
    5. Invest regularly and stay disciplined: Investing in stocks for long-term growth requires discipline and consistency. Set up automatic contributions to your investment account and stick to your long-term investment plan, even in times of market volatility. As I mentioned in my previous posts, investing in funds is a great way to do that. Also, by following a strategy called dollar cost averaging you can remove emotions from your investment decisions.
    6. Monitor and adjust your portfolio: Finally, it’s important to regularly monitor and adjust your portfolio as needed. Rebalance your portfolio periodically to maintain your desired asset allocation, and consider adjusting your investments as your financial goals or risk tolerance change over time.

    Conclusion

    Overall, investing in stocks can be a great way to build wealth over time. However, it is important to do your research and understand the risks involved. If you are feeling hesitant about investing in stocks, consider consulting with a financial advisor or taking a course on investing to gain more knowledge and confidence.

  • How do we change our mindset about investing?

    Whether investment should be done for the long term (retirement) or short term (if you are looking to pay for downpayment of a house), we should consider these key points:

    1. Short-term gains can be risky: While making quick profits through short-term investments is possible, it often involves taking on more risk. Fluctuations in the stock market can cause investments to lose value quickly, making short-term gains unsustainable.
    2. Long-term investments offer more stability: By investing for the long term, you are able to ride out market fluctuations and take advantage of compounding interest over time. This can provide more stability in your portfolio and increase your chances of achieving your financial goals.
    3. Patience is key: Investing for the long term requires patience and discipline. It is important to avoid making impulsive decisions based on short-term market movements and instead focus on the long-term potential of your investments.
    4. Diversification is important: To mitigate risk, it is critical to diversify your portfolio by investing in a mix of different asset classes and sectors based on returns and risks. This can help to offset any losses in one area with gains in another.
    5. Consider your goals and risk tolerance: Your investment strategy should be aligned with your personal financial objectives and risk tolerance. While long-term investments may be suitable for some, others may prefer a more active approach to investing. Some safe ways to make a reasonable return in the current market situation are investing in CDs and high-yield savings accounts. These are currently giving around 4%-5% interest rate annually. The US treasury bills and notes are also offering similar rates. It is essential to consider what works best for you and your financial situation and how soon you need the money.

    In summary, while short-term investments can offer quick gains, long-term investments provide more stability and the potential for compounding interest over time. By focusing on a long-term investment strategy and diversifying your portfolio, you can mitigate risk and increase your chances of achieving your financial goals.