5 Tips for Investing in Bitcoin and Other Cryptocurrencies

Learn to buy and properly store major coins before trading.
If you listen to The Three Donkeys podcast, you hear Peter Jennings, Adam Levitan, and I tell stories about trading ridiculous cryptocurrencies like Titcoin, or the time I owned a huge percentage of Vegas’s strip club currency (not to brag).

And so my initial piece of advice here might surprise you: don’t get into crypto so you can buy up coins whose primary purpose is to make it easier to get a lap dance. “Now wait, I’m supposed to swipe this where?!”

This post isn’t meant to walk you through how to buy and store crypto or go into depth about the various exchanges and wallets because there’s a mountain of content out there already, but I’ll give you a few reputable sites/tools to help you out. There’s a lot of good stuff out there, so this is just a shortlist to get you started…

Coinbase

Simple to use
Beginner-friendly place to start buying BTC, ETH, BCH, or LTC
Kucoin.com

Ability to trade cryptocurrency
Beginner-friendly
Lots of bonuses and giveaways
Changelly

Must already own cryptocurrency to use
Allows trading of currency pairs you cannot trade elsewhere
Easy-to-use exchange that searches for best rates at other sites for you
Trezor

High-security hard wallet on which you can and should store coins you plan to hold
Safer than keeping coins on an exchange
There are a variety of other sites and exchanges out there, but there’s really no reason to be trading Einsteinium on an advanced exchange until you learn how to purchase currencies and store them on a hard wallet.

I’d start by learning how to purchase Bitcoin on CEX.IO or a comparable site and send anything you don’t plan to trade to a Trezor or another hard wallet (Ledger is another good one).

A couple tips: use a bank transfer to purchase crypto (lower fees than a credit card) and make sure you enable two-factor authentication on any site you use.

If you want to learn more about crypto basics, check out this collection of resources.

Don’t diversify for the sake of it.
This is going to be pretty unpopular advice. All over the internet, you’ll find people telling you to not put all of your eggs in one basket. This is true for pretty much every type of investment. It’s certainly true in sports speculation; DFS players are told to diversify their player exposure and sports bettors to hedge their bets.

I don’t believe this is smart. The only reason you should diversify is to be able to invest more money, overcoming a lower ROI with more volume to see greater long-term gains.

I’ll use DFS as an example since that’s my expertise. If you think Michael Thomas is the top wide receiver play this week, you should have as much money on Thomas as you’re willing to stomach. It’s high-variance to not diversify, which is why people avoid it—it feels shitty to have large swings—but it will lead to the greatest ROI over the long run (if you’re right).

So why not put Thomas in every lineup? Well, you’re always trying to balance the highest possible ROI—which zero diversification allows for—with the greatest overall profit and the lowest possible risk of ruin (going busto). If you were to seek the highest ROI and greatest profit, you’d not diversify at all and play 100% of your bankroll, which would of course be idiotic since your long-term risk of ruin would be 100%.

As it relates to crypto, I’m of the opinion that you should identify what you believe is the best value, then invest as much money as you’re willing to lose in that single asset. Then, knowing that adding another coin—diversifying—can slightly reduce your risk of ruin, put as much money as you can stomach into that (which should be a lower amount).

In this way, you’re diversifying solely to be able to invest more money, increasing your profit and reducing your risk of ruin.

Okay, now two caveats. The first is that the swings in crypto are bananas. If you haven’t woken up to 35% of your investment just—poof—gone, you haven’t lived my friend. And so with that greater volatility comes more of a reason to hedge.

The second caveat is that it’s more difficult to know what’s “optimal” in cryptocurrency than in other alternative investments. Although I might be off a bit here and there, I pretty much know the top values—or a small pool of players who could be considered the top values—in DFS. It’s somewhat obvious. That’s probably not true in crypto—certainly not to the same extent and especially not for someone like me who doesn’t know what the hell he’s doing.

If you believe in the overarching concept and believe the entire cryptocurrency market cap will rise, there’s an incentive to just stay in the game, meaning it’s probably wise to diversify more here than in more “solved” games like DFS.

Nonetheless, I think something like a 60/25/10/5 type of split is better than putting 5% of your cash into 20 different coins.

Market cap matters more than coin price.
A friend of mine saw that I had some early trading success—mostly just the result of a bull market for altcoins and a few lucky moves—and asked if he could give me some money to invest. I agreed, and so he’s become interested in the space and has his own suggestions of trades to make. In the beginning, those were often, “We should get XYZ because it’s under $1.”

This is the most common mistake I see made by those new to crypto. The price of coins is relevant only after accounting for the circulating supply. The number of coins multiplied by the price of those coins is the total market cap for the token, and that’s what really matters. When you buy any coin, what you should really be focused on isn’t the price of the coin, but what percentage of that total market cap you’re purchasing.

As an example of the difference, take a look at the top six coins in terms of market cap (specifically Ripple), via CoinMarketCap.com:

At the time of writing this, Ripple costs 23 cents—nearly 300 times less than Litecoin and 1,800 times less than Dash. Nonetheless, because of the way in which Ripple operates, there’s a much larger circulating supply, and thus the market cap of Ripple is over twice as large as Litecoin and Dash.

On the flip side, I can’t tell you how many people I know have said, “I’m not buying Bitcoin right now. If I invest $5,000, I can’t even get a whole token.”

But who cares? If the market cap of Bitcoin increases by 20%, someone investing $5,000 will have made $1,000 in the same way that they’d make $1,000 if Ripple increases 20%. Yes, it could be easier for certain coins to see massive swings in value, but that would be due to their market cap and not the coin price. It’s more difficult for Ripple (nearly $9b market cap) to go from 23 cents to 46 cents than for a coin with a $100 million market cap to double in price (regardless of the cost of one token).

The point is that the price is effectively arbitrary based on the circulating supply of tokens. If there were theoretically just one circulating Bitcoin that cost $130b+, it wouldn’t change the merits of your $5,000 investment in it.

Don’t get hung up on the absolute price.

Don’t take profits unless there’s a change in circumstances.
I got a hotel in NYC a couple weeks ago and planned to go up for the day. When that day came, I just didn’t feel like going anymore, so I didn’t. The fact I paid for the hotel meant nothing—it was a sunk cost and that money was gone—and so the only relevant factor was really whether or not I felt like going to NYC that day.

Don’t let past decisions affect future ones if they have no bearing on your happiness (or, in investing, your expected value). With any investment, it’s irrelevant whether or not you’re up or down or you’ve removed your initial investment or you’ve run it up 10x or whatever. I can’t tell you how many times I’ve been talking with my mom about crypto and she has said, “You should take out some of the money you’ve made.”

There are really only a couple reasons you should be taking profits, all of which are the result of something changing. One would be that your net worth has shifted and you’re over-exposed to crypto. As an example, let’s say you bought Bitcoin at $1k with $50k in the bank, and you think it’s smart to have 20% of your money in BTC (so you bought $10k of it). If the price of BTC is now $8k and you didn’t sell, your BTC would be worth $80k. Assuming your net worth otherwise didn’t grow, you’d have $80k in BTC and $40k in cash. Even if holding is +EV, it might be too much risk for you to stomach, in which case you’d be justified in taking money out.

Of course, if you think the future of crypto has changed for the worse—or that your money could be better invested elsewhere—then you’d also be justified in changing your allocation.

Finally, although it’s admittedly irrational, I think you could make an argument for removing your initial investment solely for peace of mind. If you invested $1k in crypto and have run it up to $10k, removing the initial $1k isn’t the worst idea if you think it will help you psychologically. A lot of people think and act differently when they’re on a freeroll; just look at how people act in casinos when they’re “playing with house money.” If it is comforting to you think “the worst that can happen is I’m back to even,” then removing a small portion of your crypto funds so you’re on a freeroll is probably fine. It’s not mathematically the right decision, but you can potentially make up for the loss in EV from just having peace of mind that you’ll never be down from your investment.

Dow Jones plunges 724 points

Wall Street has plunged over fears of a US-China trade war, after the Trump administration moved to impose tariffs on up to $US60 billion ($77 billion) worth of Chinese imports.

Markets at 7:05am (AEDT):

ASX SPI 200 futures -1.5pc, ASX 200 (Thursday’s close) -0.2pc at 5,937
AUD: 77.06 US cents, 54.6 British pence, 62.6 Euro cents, 81.2 Japanese yen, $NZ1.07
US: Dow Jones -2.9pc at 23,958, S&P 500 -2.5pc at 2,644, Nasdaq -2.4pc at 7,167
Europe: FTSE -1.2pc at 6,943, DAX -1.7pc at 12,100, Euro Stoxx 50 -1.7pc at 3,342
Commodities: Brent crude -0.8pc at $US68.90/barrel, spot gold -0.2pc at $US1,328.81/ounce
Mr Trump signed a presidential memorandum that will target the Chinese imports but only after a consultation period.

China will have space to respond, reducing the risk of immediate retaliation from Beijing.

Mr Trump said the move was intended to punish China for alleged intellectual property theft.

Worst day in six weeks

The Dow Jones index has tumbled by 724 points, or 2.9 per cent, to 23,960.

This was its biggest fall since the February 8 sell-off, during which it shed 1,175 points.

As for the S&P 500 and Nasdaq, they also fell by a hefty 2.5 and 2.4 per cent respectively.

European stock markets also suffered massive losses in reaction to the tariff announcement — with steep falls for London (-1.2pc), Frankfurt (-1.7pc) and Paris (-1.4pc).

Industrial stocks were among the weakest performers, with Boeing and Caterpillar sliding by 5.2 and 5.7 per cent respectively.

Technology stocks also fared poorly, with Facebook shares dropping by another 2.7 per cent overnight.

The S&P technology sector was dragged down as well over fears there might be tighter regulation on how these companies use people’s data.

“There’s too much negative sentiment right now,” John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston, said.

“I don’t see anything on the horizon that will reassure people that things are just great.”

Australian market to sink

Following the negative lead from global markets, the Australian share market is likely to fall sharply at the open.

In currencies, the Australian dollar has fallen sharply to 77.06 US cents, 54.6 British pence, 62.6 Euro cents, and 81.2 Japanese yen.

As for how the ASX would fare if a trade war erupted, CMC Markets’ Michael McCarthy told the ABC: “Australia’s resource-heavy share market is likely to suffer more than most other share markets.”

“Industrials and commodities are likely to slump if this continues, so the materials and energy sectors will be hit hard.”

How Fed rate hike will affect your finances

Credit cards

Most credit cards have a variable rate, which means there’s a direct connection to the Fed’s benchmark rate and card holders will feel an immediate pinch.

“Variable rate debt is where you are most susceptible as interest rates rise,” McBride said.

The average American has a credit card balance of $6,375, up nearly 3 percent from last year, according to Experian’s annual study on the state of credit and debt in America. Total credit card debt has reached its highest point ever, surpassing $1 trillion in 2017, according to a separate report by the Federal Reserve.

Tacking on a 25-basis-point increase will cost credit card users roughly $1.6 billion in extra finance charges in 2018, according to a WalletHub analysis. Factoring in the five previous rate hikes, credit card users will pay about $8.4 billion more in 2018 than they would have otherwise, WalletHub said.

However, for those with good credit, there are still opportunities to find a better rate or snag a zero-interest balance transfer offer to insulate yourself for a time from further rate hikes and “give yourself a tail wind toward debt repayment,” McBride said.

Mortgages

The economy, the Fed and inflation all have some influence over long-term fixed mortgage rates, which generally are pegged to yields on U.S. Treasury notes, so there’s already been a spike since the start of the year.

The average 30-year fixed-rate is now about 4.54 percent — up from 4.15 percent on Jan. 1 and significantly higher than the record low of 3.5 percent in December 2012.

With interest rates rising, adjustable-rate mortgages will certainly be heading higher, too, and those with some types of ARM loans “are sitting ducks for getting another increase,” McBride said.

Many homeowners with adjustable-rate home equity lines of credit, which are pegged to the prime rate, also will be affected. But unlike an adjustable-rate mortgage, these loans reset immediately rather than once a year.

For example, a rate increase of 25 basis points would cause borrowers with a $50,000 home equity line of credit to see a $10 to $11 increase in their next monthly payment, according to Mike Kinane, senior vice president of consumer lending at TD Bank.

Stocks and the dollar fall after Fed rate move

“President Trump’s trade barriers are causing concerns for the Fed, where policymakers believe [such measures] will put a break on growth and the market seems to agree,” says Paul Flood, portfolio manager of the Newton Multi-Asset Income Fund.

Hot topic

The dollar is slipping, stock markets are under pressure and there is sustained demand for US government debt after the Federal Reserve stuck by forecasts that it will lift interest rates by a total of three times in 2018.

Meanwhile, worries about the impact of a potential trade war on global growth is deepening a sense of unease, knocking stocks and adding to the appeal of safer assets.

As expected, the US central bank lifted the target range for the federal funds rate by a quarter point to 1.75 per cent. Policymakers’ projections pointed to an extra rate increase in 2019 and further tightening in 2020, and said inflation would accelerate. Nonetheless, talk that they would signal a total of four rises for this year proved wrong.

That left the dollar looking exposed, and the index tracking it fell to a 10-session low on Thursday to 89.524, taking it down 1 per cent over the last two sessions and leaving its fall over the week at 0.8 per cent.

The yield on the 10-year US Treasury is falling as investors buy into the debt. It is down 4.6 basis points at 2.861 per cent. That on 2-year Treasuries is down 1.7bp at 2.299 per cent.

Equities

European stocks are falling, with selling gathering pace after mixed showing in Asia.

Frankfurt’s Xetra Dax 30 is down 1 per cent, with London’s FTSE 100 0.6 per cent weaker. The Europe-wide Stoxx 600 is down 0.8 per cent.

Japan’s Topix swung between gains and losses to rise 0.7 per cent overall.

Hong Kong’s Hang Seng fell 1.1 per cent. The CSI 300 index of Shenzhen and Shanghai stocks fell 1.1 per cent as the latest threats of trade curbs from the Trump administration were said to be designed to stop China from stealing the intellectual property of American business, and after the Chinese central bank raised short-term rates.

US stocks are expected to fall further after weakening over a choppy session on Wednesday. Futures trade is pointing to losses of 0.7 per cent for the S&P 500 after a 0.2 per cent slip.

Forex

The pound is up 0.2 per cent at $1.4170 ahead of a rate call from the Bank of England, at which it is expected to leave interest rates on hold, with analysts thinking the next increase will come in May.

The euro is up 0.4 per cent at $1.2384, while the yen is 0.3 per cent stronger at 105.68.

Despite cryptocurrency mania, just 8 percent of Americans are invested in them

Cryptocurrencies are in the headlines every day and some say are powerful enough to take down the stock market as well as threaten the role of century-old banks and governments.

Turns out, demand for the digital coins is still pretty low though.

Less than 8 percent of Americans own cryptocurrencies, according to a new study by personal finance website Finder.com.

The site surveyed 2,000 adults in the United States in February.

The results show the hype around cryptocurrencies is not yet mirrored by reality, said Aswath Damodaran, who teaches finance and valuation at the New York University Stern School of Business.

“Bitcoin has taken over the public imagination,” Damodaran said. “But it’s a very small phenomenon.”

He pointed out that the market capitalization of all cryptocurrencies (below $400 billion) is less than half the market cap of one company: Apple, which has a market capitalization of more than $900 billion.

The most popular cryptocurrency is bitcoin, with an estimated 5 percent of Americans owning some.

The share of Americans who own several other well-known digital coins underscores how far these currencies have to go: Less than 2 percent of Americans own Ethereum and less than 1 percent own Ripple, the survey found.

More than 40 percent of Americans who hadn’t purchased cryptocurrencies said their reason was disinterest or believing there is no need to do so. Another 35 percent said the risk is too high, according to the survey

To that point, 27 percent of people said it’s too difficult to understand and another 18 percent said they believe it’s a scam.

“We’re spending so much time on [cryptocurrencies] as if half of Americans have their wealth in bitcoin,” Damodaran said

10 Tips for Successful Long-Term Investing

There are essentially two strategies for boosting savings and investments: Increase your income and cut your spending.

Whether you’re a young adult ready to start saving for retirement, a 50-something ready to pay off your mortgage or a senior citizen living on a fixed income, these tips can help you build savings, reduce debt, boost income and invest smartly.

1. Review your needs and goals

It’s well worth taking the time to think about what you really want from your investments.

Knowing yourself, your needs and goals and Your appetite for risk is a good start, so start by filling in a Money fact find.

2. Consider how long you can invest

Think about how soon you need to get your money back.

Time frames vary for different goals and will affect the type of risks you can take on. For example:

  • If you’re saving for a house deposit and hoping to buy in a couple of years, investments such as shares or funds will not be suitable because their value goes up or down. Stick to cash savings accounts like Cash ISAs.
  • If you’re saving for your pension in 25 years’ time, you can ignore short-term falls in the value of your investments and focus on the long term. Over the long term, investments other than cash savings accounts tend to give you a better chance of beating inflation and reaching your pension goal.

3. Make an investment plan

Protect yourself

Once you’re clear on your needs and goals – and have assessed how much risk you can take – draw up an investment plan.

This will help you identify the types of product that could be suitable for you.

A good rule of thumb is to start with low risk investments such as Cash ISAs.

Then, add medium-risk investments like unit trusts if you’re happy to accept higher volatility.

Only consider higher risk investments once you’ve built up low and medium-risk investments.

Even then, only do so if you are willing to accept the risk of losing the money you put into them.

4. Diversify!

It’s a basic rule of investing that to improve your chance of a better return you have to accept more risk.

But you can manage and improve the balance between risk and return by spreading your money across different investment types and sectors whose prices don’t necessarily move in the same direction – this is called diversifying.

It can help you smooth out the returns while still achieving growth, and reduce the overall risk in your portfolio.

5. Decide how hands-on to be

Investing can take up as much or as little of your time as you’d like:

  • If you want to be hands-on and enjoy making investment decisions, you might want to consider buying individual shares – but make sure you understand the risks.
  • If you don’t have the time or inclination to be hands-on – or if you only have a small amount of money to invest – then a popular choice is investment funds, such as unit trusts and Open Ended Investment Companies (OEICs). With these, your money is pooled with that of lots of other investors and used to buy a wide spread of investments.
  • If you’re unsure about the types of investment you need, or which investment funds to choose, get financial advice.
Read our independent guide on Popular investments at a glance

6. Check the charges

If you buy investments, like individual shares, direct, you will need to use a stockbroking service and pay dealing charges.

If you decide on investment funds, there are charges, for example to pay the fund manager.

And, if you get financial advice, you will pay the adviser for this.

Whether you’re looking at stockbrokers, investment funds or advisers, the charges vary from one firm to another.

Ask any firm to explain all their charges so you know what you will pay, before committing your money.

While higher charges can sometimes mean better quality, always ask yourself if what you’re being charged is reasonable and if you can get similar quality and pay less elsewhere.

7. Investments to avoid

Avoid high-risk products unless you fully understand their specific risks and are happy to take them on.

Only consider higher risk products once you’ve built up money in low and medium-risk investments.

And some investments are Usually best avoided altogether.

8. Review periodically – but don’t ‘stock-watch’

Regular reviews – say, once a year – will ensure that you keep track of how your investments are performing and adjust your savings as necessary to reach your goal.

You will get regular statements to help you do this. Find out more below.

However, don’t be tempted to act every time prices move in an unexpected direction.

Markets rise and fall all the time and, if you’re a long-term investor, you can just ride out these fluctuations.

9. Be Open-Minded

Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps. From 1926 to 2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor’s 500 Index (S&P 500) returned 10.53%.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average (DJIA), and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains.

10. Be Concerned About Taxes, but Don’t Worry

Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you’ll want to put tax considerations above all else when making an investment decision

Cryptocurrencies drop after Google bans them in its advertising

Bitcoin and the rest of the cryptomonedas have not been pleased with Google’s decision to ban all advertising related to them and the ICOs from next June. Following the decision announced yesterday, the value of all the cryptomonedas has fallen again strongly just as they were beginning to recover from the latest falls.

At this hour, if we look at indices like CoinMarketCap we can see that the value of Bitcoin has fallen by 13.45% compared to yesterday, and its value is already down from $8,000. In the rest of the most used kryptom currencies according to this index the fall is even more marked, with falls of 14.72%, 16.58% and 14.25% for Ethereum, Ripple and Bitcoin Cash.

Fall Crypts
As usual, the most logical thing is that in the next few days the value of cryptomoney will start to grow again. But what is clear is that, with so many ups and downs, it does not seem easy to find a short-term stability that will make them grow back to the levels they had at the beginning of the year. Even so, we will have to wait and see what happens in the medium and long term.

It should also be remembered that Google is not the only one charging against this type of technology either. By the end of January, Facebook had also decided to ban ads related to cryptom coins and initial coin offerings (ICOs) on all its services. In addition, celebrities like Bill Gates are also strongly criticising it, and some governments are threatening to ban it.

The measures taken by Google or Facebook have not ceased to cause some controversy among those who support the chain of blocks. The decisions come, according to the companies, to protect the users, and it is true that there are many deceptions trying to capture misled with keywords like Bitcoin or Blockchain. But what they are doing is generalizing and punishing everyone equally, including legitimate product advertisements that strive to do things right.

Governments like Spain are swimming against the tide
While European countries such as Germany, France, or Italy, as well as others such as the United States, do not yet seem willing to enter into the regulation of cryptomoney, there are still some who decide to swim against the tide and to position themselves in favour of this technology. This is the case in Spain, where the Treasury is studying their impact, and the ruling party is drafting a bill to try to favour them.

Spain’s idea is to offer benefits such as possible tax breaks to attract companies that use block chain-based technologies or opt for initial currency offerings (ICOs) as a financing tool. In doing so, they may want to position themselves in Europe alongside countries such as Switzerland as one of the Blockchain capitals of the world.

In any case, the debates surrounding the cryptomonedas and the chain of blocks have only just begun, and it remains to be seen what will happen after this storm of instability subsides, if it does, once Bitcoin and the company normalise the bans and countermeasures that are being imposed on them.

Why you should invest in index rather than stocks?

Getting an investment right is often a matter of luck, but most of the time, and resulting in an average of all investment decisions in the medium/long term, most of the time the return obtained is a matter of a well-planned investment strategy.

Investing in stocks, or their collective equivalents such as mutual funds, requires time, knowledge and dedication; at least so that we know with some guarantee what we are investing in, and whether we really have options to see a juicy return in the form of revaluations. But there is another option that, although it may give lower returns than some stocks in particular, offers a much safer return, at least 100% safe from bankruptcies or corporate extinctions. The option is to invest in indices.

Any investment decision requires a thorough analysis: if not, it is better to go to the indices
These Are The Reasons Why It May Be Preferable to Invest in Indices Rather Than Stocks 2
Statistically, for most people, it’s not usually good investment decisions to make when you use the heat of a bubble. Neither are those who simply have the money raising dust (and other people’s profits) in the bank account. And while it is true that each type of investor at each moment of his life has some needs for his savings, which must be translated into a different way of investing them, it is no less true that in the markets, the safest return is in the long term. Security is out of gold fevers that leave more and more victims than the new rich, and requires taking the time to analyze every balance sheet, every company, every market.

But not everyone has the time (or the will) to scrutinize every accounting entry of listed companies that are a potential investment destination. Something similar happens with investment funds that often also require in-depth analysis, at least to know if they are well managed and if their management style is adapted to our needs. Focusing on analyzing for that average investor, with no time or knowledge to analyze beyond a few minutes a day, we always have the indices there.

And how to invest in indices? Well, the truth is that to invest in an index as such, the best option is the quoted funds or ETFs that replicate them. This financial product, which revolutionised the investment market a few years ago, combines very low management fees, real-time trading such as shares, and dividends. Indeed, in addition to today’s topic, index ETFs are an exceptional formula for optimizing the profitability/effort+time equation.

In order for profitability to come to your statement of securities account, all that is needed is for the index to take the bullish path. On this last point in particular, which is the crux of the matter in the end, we can only recommend in general terms that you frequently read serious salmon halves like us, so that you can measure the pulse of the market at any time you need to make an investment decision.

Well, there is an empirical basis for this, but always under the previous premises of needing an investment formula that optimises this exchange of profitability/effort+time. Because obviously, a good investment in the shares that are most revalued in the market will always yield more returns. After all, indices are only a weighted average of the shares that make up the index, and mathematically there will always be stocks with a higher return than the index, but don’t forget: there will also be as many stocks with a much poorer return as the selective (and not selective) ones.

What is more, there will be stocks (and even whole companies) that will disappear from the face of the markets, resulting in a sinister balance sheet of 100% losses for the hardest-hit and most suffering investors. And that is precisely where we would like to focus on today’s issue: it is precisely by investing in indices that you are completely safe from this fateful (but not infrequent) event of corporate deaths.

And to return to the question that led to the last title: yes, there is an empirical basis for affirming that indices are the best neglected investment formula. The empirical basis requires a somewhat lengthy analysis of the life cycle of a selective index. And although we really need a senior index for the temporary sample to be somewhat rigorous, the results are going to be equally worthy of consideration.

The crises we are talking about may no longer be so fresh in popular memory, but I can assure you that both of them have been very dramatic for our socioeconomy (I hope you will at least keep the last one in mind). We are talking about that”.com” crisis that devastated the markets, and the most recent and terrible Spanish real estate crisis.

In the first of these debacles, the”.com” crisis, we must remember how there were prices related to technology that rose like a real rocket: Telefónica was the first of them, despite being a giant. But there were other protagonists in this disaster. Due to the size of our domestic selective, we can only speak of one of these”natos.com” players, unlike other markets such as the US and its large NASDAQ.

This”nato.com” star is Terra, the unsuccessful company that led the.com bubble in Spain, and which even surpassed ENDESA in terms of market capitalisation with hardly any assets and little more than a generic Internet portal. The company, once the flagship of the new economy, was de-listed in 2005 with a 98% drop from highs, and having volatilized the savings of countless small investors. However, the Ibex-35 is still there.

The other major crisis that the Ibex-35 has survived with revenues is the already”fresh” Spanish real estate crisis. Due to the generalization of the bubble within the Spanish economic reality, in addition to the always important relative weight that the construction sector has had in the economy of Spain S.A., in this case we have many more protagonists. The star of this bubble was the vibrant real estate bubble Astroc, overheated where they were, but that gave yields that seemed to be the result of a rocket that was never going to stop rising (like the price of flats). But it ended up going down (and how they did it!), just as some of us predicted.

Astroc’s travel companions were most (if not all) of the rest of the construction and real estate companies. After years of drought in the real estate market, there have been several victims. Disappearances, bankruptcies, mergers for survival have populated the sector of both listed and unlisted companies. Companies such as FCC, which was once a business example of management and profitability, have ended up impoverished and in a situation of weakness, which has taken them out of the selective market in one way or another.

We have analysed the national case of the Ibex-35 because we have to do so, but this temporary sample we spoke of earlier, in the case of our relative Ibex-35, does not meet the minimum standards of statistical rigour that some of us demand of ourselves: it is too young an index. In fact, as I was saying, the Ibex-35 as such saw the light back in 1992, which distances us from its creation for a mere 26 years.

This is really not much in relative terms when compared to longevity and business lifecycles, nor for the average return cycle for savings accumulated over a full working life. The point is that this comparison is so fair in timing that it does not allow for a more extensive comparison, so that cyclical and/or random market and economic events can be ruled out. And it is precisely today that we are dealing with the issue of investment in the long term, with a time horizon of a working life.

But the”truncated” sample of the Ibex-35 becomes revealing in other more senior selectives
These Are The Reasons Why It May Be Preferable to Invest in Indices Rather Than Stocks 7
Fortunately, we have around us other indices with more history than ours, and which are listed in an economic system very similar to the European and Spanish ones. Indeed, I’m talking to you about Comrade Dow. The DWIJ, or Dow Jones Industrial Average, is a selective that was created at the end of the 19th century, more specifically in 1896. Apart from the fact that it is undeniable where the cradle of popular capitalism lies, it is interesting to analyse those 12 companies that were included in the index at its launch, and to know what has happened to them today.

Business Insider recently did this informative analysis exercise in this article. As you may have seen, and as expected, the economic and business reality shown by the analysis of the composition of the index smells like naphthalene. And it is entirely logical, since that original Dow reflects a socioeconomy of almost 125 years ago. This is indeed a truly historic composition. But let’s move on to today’s analysis, and see if it would have been more appropriate to invest in the index, or in stocks, in this sample period.

Fixed-income funds can also fall

It is more than common for many small (and not so small) investors to see fixed income as a safe haven in which to save their savings. Sometimes you can even find certain financial advisors who sell it as such. But neither of us is right.

This erroneous concept of fixed income investment is induced by its more intrinsic nature, which basically consists of receiving the interest agreed upon in the issue year after year until the maturity of the security. But the truth is that, although it may not seem a priori, fixed income is also low. Today we analyze this paradoxical behavior that is about to reach the markets.

After the last meeting of the European Central Bank, during the subsequent press conference, Mario Draghi once again said that the ECB would maintain interest rates at the current 0% rate, while maintaining the marginal lending facility, the rate at which it rewards excess reserves held by European banks at -0.4%. In other words, the central bank will continue to charge the banks for saving their money in order to stimulate the circulation of money and loans in the Eurozone.

Needless to say, both rates, interest rates and the marginal lending facility, are currently at completely abnormal levels. And they have been there since they historically hit bottom in the first quarter of 2016. The current figures are part of the ultra-expansive monetary policy that was launched by the ECB, after other central banks such as the Fed and the Japanese central bank, in response to the Great Recession that began after the fall of Lehman Brothers in 2008.

But as we have been warning from these lines every time we have the opportunity, interest rates are not going to remain at these levels indefinitely: take this into account in your financial decisions, and especially when you’re counting on a mortgage application. In fact, the light is already visible at the end of the rate tunnel at 0%, and there is less and less time left for rates to return to their upward trend. The ECB believes that the storm in Europe is already breaking out, and that the herd can therefore now be removed from the shelter.

The truth is that, as it could not be otherwise, the financially orthodox Germany was the first European corner from which they began to demand a rate hike from the ECB quite a few quarters ago. In fact, the famous German”five wise men” have already urged the Draghi to do so.

The ECB’s response has been to state that it will not only maintain current interest rate levels, but also seek to maintain psychological stability among market participants. The aim is to help the business climate in the Eurozone, so as not to”scare” it off” prematurely: for European economic operators, a rate hike would be a significant turning point marking the end of an era.

But at the ECB, what they say is one thing, and what they think is another. In Frankfurt they are well aware of the current economic situation, and in fact behind the scenes there is already something moving in terms of interest rates. Thus, it is common knowledge that the ECB has already begun to discuss the end of monetary stimuli, including ultra-expanding interest rates. In fact, strong hands and smart investors, which often include the”professionalised” bond market, have already begun to discount this scenario, and bond prices have picked up.

Fixed’ income is also falling, so they are not surprised when they see a negative return on their fixed income funds. In fact, fixed income is falling precisely in the upward cycles of interest rates, in one of which we are about to enter Europe. The obvious question that I hope is being drawn in their minds is: And how is it likely to come down? We analyze it for you in the following lines. You’ll see how it has all the market logic.

Obviously, if you as an individual investor buy a fixed income security, whether it is a bond bond or a letter, in the fixed income securities market (or primary market), you will agree to a return in exchange for lending your money to the state (or a large national company). If you hold this security in your portfolio until maturity, you will not see any negative returns at any time, and will end up receiving the initial capital invested, in addition to the return agreed upon at the time of purchase.

WHAT ARE MIXED FUNDS?

Mixed funds are one of the broadest, most flexible and discretionary categories of investment funds available.

They could be classified as suitable for moderate profiles, but only within this category can funds be found for all tastes.

It is necessary to know what types of mixed funds exist, what characteristics they have and what average returns they are presenting. This information together with an adequate study of our risk profile as investors will open the way for us to choose a mixed fund wisely.

Let’s see how this financial product, due to its wide extension and room for manoeuvre granted to the manager, can be ideal for any type of saver.

However, it is necessary to fine-tune the shot before shooting and this is what we will learn today.

Mixed funds can be defined as those that combine both fixed and variable income portfolios in their portfolios.

We say”roughly speaking” because there are actually multiple subcategories within mixed funds, hence the problem of choosing one.

It is not as simple as simply combining the two types of assets, it is also necessary to decide in what proportion.

Objectives of the mixed funds

But let’s start at the beginning. A mixed fund was created to provide stability to an equity fund by including fixed income assets in its portfolio. In this way we create a product that is halfway between fixed income and equity funds, in terms of risk.

From another point of view, one might also think that the intention is to incorporate equities into a fixed-income portfolio in order to increase returns while maintaining an adjusted level of risk.

Which of the two visions is the right one? Is a mixed fund set up to protect a portfolio of equities or is it intended to increase the return on a portfolio of bonds?

The percentage of each of the two types of assets included in the fund’s portfolio can be used to determine the manager’s view of these issues.

In principle, it should be clear to us that a mixed fund is a category of investment funds. The categories were created jointly by the Comisión Nacional del Mercado de Valores and Inverco (Association of Collective Investment Institutions) to offer a criterion to savers and to be able to choose a tailor-made investment fund.

What the category of the fund indicates to us is the investment vocation.

In other words, the fund’s guidelines for deciding which assets to include in its portfolio and the percentages thereof.

The investment vocation defines the level of risk that the fund can assume and this information is very useful to fund managers.

Thus, a mixed fund will have more return and risk than a fixed income fund, but less than a variable income fund.

But this is all we need to know?

Of course not, of course not.

This information is very general, it does not indicate the percentage of each type of asset, and therefore, the manager’s vision, or the specific risk profile.

For this reason, different subcategories have been created within the universe of mixed funds.

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Types of mixed funds

It should be noted that mixed funds are very flexible products. In reality, all investment funds are flexible products, this is one of their advantages. However, this category is characterized by being particularly ductile.

There is no fixed percentage to determine the types or subcategories. There are ranks and the fund manager has ample room for manoeuvre in setting his or her criteria for the strategy.

We should also point out that there are other factors for defining the categories of mixed funds. Depending on the geographical area in which the selected assets originate and the exposure to a particular currency, multiple rates are set.

According to Inverco, the categories are:

Mixed fixed income euro

Characterized by not being able to have a percentage of equity exposure greater than or equal to 30% of the total portfolio. They must also have an exposure to foreign currency assets of less than or equal to 30% of the total.

International mixed fixed income

They must have an equity exposure of less than 30% of the total portfolio, but have more than 30% in assets issued by entities located outside the euro area and denominated in foreign currency.

Euro mixed equities

They must have a percentage of equity in their portfolio of between 30% and 75% (inclusive). They cannot have more than 30% exposure to assets issued in currencies other than the euro.

International equities

The distribution of the portfolio is the same as for mixed euro equities, but in this case they can have a percentage of exposure.