Invest Wisely: Understanding The I Invest Platform

Investing is the act of allocating resources, usually money, with the expectation of earning a profit. It is a medium to a long-term commitment, which means you should be prepared to invest for at least five years. When you invest, you're buying into something you believe will increase in value over time. This could include stocks, bonds, shares, Exchange Traded Funds (ETFs), mutual funds, or real estate. There are no guarantees when investing, and your money could lose value, so it's important to understand the basics and assess your financial situation, risk appetite, and future goals before starting.

Risk management

Risk is inherent in any investment, and it is broadly categorised as the chance that an outcome or investment's actual return will differ from the expected outcome or return. Risk management is the process of identifying, analysing, and accepting or mitigating uncertainty in investment decisions. It helps investors achieve their goals while offsetting any associated losses.

The first step in risk management is identifying your goals and the risks associated with them. Once you know what the risks are, you can research and implement the best ways to manage these risks. It is important to monitor and make adjustments to ensure that you stay on top of your goals. Operational risk is any potential danger to the day-to-day operations of a business. Companies manage it by identifying and assessing potential risks, measuring them, and putting controls in place to mitigate or eliminate them.

There are several common measures and strategies for managing investment risks. These include diversification, asset allocation, and hedging. Diversification involves spreading your investments across different industry sectors, market capitalisations, and geographic regions. Asset allocation is setting a mix of stocks, bonds, and short-term investments that aligns with your investment time frame, financial needs, and comfort with volatility. Hedging involves buying a security to offset a potential loss on another investment. While these strategies can add costs to your investment, they can also provide additional ways to manage risk.

Other risk management techniques include finding the right broker, setting stop-loss and take-profit points, spreading bets, and using options. The 1% rule demands that traders never risk more than 1% of their total account value on a single trade. It is also important to understand financial markets and be familiar with the various tools used to read price movements.

Additionally, there are several common metrics used in risk measurement, such as standard deviation, beta, Value at Risk (VaR), and Conditional Value at Risk (CVaR). These indicators are often calculated for you on financial platforms and investment research reports. Combining these tools can give you a better understanding of the risks associated with an investment.

Share prices

• Supply and Demand: Share prices are primarily driven by the basic economic principle of supply and demand. When more people want to buy a stock (demand) than sell it (supply), the share price tends to rise. Conversely, when more people want to sell a stock than buy it, the price usually decreases.
• Company Performance: Share prices often reflect a company's performance and earnings. If a company consistently performs well and generates increasing profits, its share price is likely to rise over time. Conversely, if a company's performance declines or fails to meet expectations, its share price may fall.
• Market Conditions: Share prices are also influenced by overall market conditions and economic trends. During economic booms, share prices tend to rise as investor confidence increases. In contrast, during economic downturns or periods of uncertainty, share prices may fall due to reduced investor confidence.
• Investor Sentiment: The emotions and behaviours of investors can significantly impact share prices. Positive news, such as a new product launch or favourable earnings report, can lead to increased demand and higher share prices. Conversely, negative news or uncertainty about a company's future may cause share prices to drop.
• Dividends and Reinvestment: Some companies distribute a portion of their profits to shareholders in the form of dividends. Dividend payments can influence share prices, as investors may anticipate future dividend income. Additionally, reinvesting dividends into buying more shares can also impact share prices, potentially increasing demand and prices over time.
• Entry and Exit Timing: Entering and exiting the market at the right time is crucial for maximising profits. Investors typically aim to buy shares at low prices and sell them when prices are high. Careful analysis and monitoring of market trends and individual stock performance are essential for making timely decisions.
• Risk and Diversification: Share prices vary in risk, and it's important to assess your risk tolerance. Diversifying your portfolio by investing in various stocks or funds can help mitigate the impact of a single stock's price fluctuations.
• Long-Term Focus: Investing in shares is typically a long-term strategy. While short-term price movements occur, focusing on companies with strong long-term growth potential is generally recommended. Regular investments, even small ones, can compound over time and lead to significant gains.

Understanding the dynamics of share prices and conducting thorough research before investing are essential steps in making informed investment decisions.

Types of investments

Investing is when you set aside money for the future, putting it to work to achieve your financial goals. It is a medium to long-term commitment, and while there are no guarantees, your money has the potential to grow.

There are several types of investments, each with its own level of risk and potential returns. Here are some of the most common types:

Stocks and Shares

When you buy shares, you're buying a small stake in a company, and you become a shareholder. Shares can pay dividends, and their value can increase over time, but they can also decrease. The value of shares depends on various factors, including the size of the company, its profitability, and its financial stability.

Funds

Funds are collective investments, where your money is pooled with that of other investors. This money is then used to buy a mix of different assets, such as shares, bonds, cash, and more. This diversification helps to spread your risk, as not all investments will perform the same way.

Exchange-Traded Funds (ETFs)

ETFs are similar to mutual funds, but they trade on a stock exchange. They invest in a range of assets, such as equities, bonds, or commodities, and may specialize in a particular industry, sector, or country. ETFs are cost-effective, offering lower fees due to their lower operating costs.

Property or Real Estate

Investing in property can include buying physical real estate or investing in a property fund. The aim is for the property to increase in value over time, and it can also generate rental income.

Alternative Investments

These are some of the more complex types of investments, often carrying higher-than-average risks but also offering the potential for higher-than-average returns. Examples include crypto assets, such as cryptocurrencies, crypto funds, and digital tokens.

It's important to understand the risks and costs associated with any investment and to seek guidance from a financial advisor to ensure that your investments align with your financial goals and risk tolerance.

Getting started

Investing is allocating resources, usually money, with the expectation of earning an income or profit. It is putting money aside for the future and buying into something that you believe will increase in value over time. There are no guarantees, and your investment could fluctuate in value or decrease, meaning you could get back less than you invested.

If you are thinking about investing, it is important to learn the basics and work out whether it is right for you. You should consider your financial situation, life circumstances, risk appetite, and future goals. It is recommended that you have some money saved up before you start investing, such as an emergency fund to cover 3-6 months' worth of living expenses.

Investing should be considered a medium to long-term commitment, ideally for at least five years, to ride out any short-term fluctuations. You can access the money if you need to, but the longer you can leave it, the better opportunity you have to work towards higher returns.

There are a number of different ways you can invest, including stocks, shares, funds, bonds, and property. When you buy shares, you are buying a small stake in a company, and if the company performs well, the demand for its shares will increase, pushing up the share price. If the company does badly, the share price will generally drop. Funds are a collective investment, meaning your money is pooled with other people's to buy a mix of different assets, which helps to spread your risk.

Long-term goals

Investing is allocating resources, usually money, with the expectation of earning an income or profit. It is putting money aside for the future and making it work for you. When you invest, you are buying into something you believe will increase in value over time.

If you are investing for a long-term goal outside of retirement or a child's education, you will want a taxable investment account. With online brokerage accounts, it is entirely up to you how and when to invest your money. Your asset allocation depends entirely on your timeline and the level of risk you want to take on. While most financial experts recommend investing most of your money in low-cost index funds, you might decide to devote a small part of your taxable investment portfolio to individual stocks or more speculative, high-risk investments, like cryptocurrency.

It is important to remember that there are no guarantees when investing, and you could receive back less than you invested. The value of investments can and do jump around, which is normal.

Frequently asked questions