Investing 101 (Part 3)

So we know about cash, bonds and equities. Let's have a look at the following three asset classes.

4. Property or as some people like to call it, real estate, is the asset class of the tycoon. When I write that my mind immediately goes to Donald Trump who would have to be one more famous property guys in the world if not the most famous. When you look at very rich people's portfolios you would see that a great deal of it is in property. Remember when you invest in property you don't necessarily have to invest in the actual property. You can get exposure to property in funds and the like. So if you don't like fixing toilets at 3am on a cold wintry Tuesday morning then that might be the way to go for you.

5. Commodities are your raw materials. These are things like oil, wheat, even currency is a commodity. Basically anything that can be bought and sold on an exchange. Commodities can be very volatile and are considered a nil sum game. This is where if you are making money through commodities then someone else is losing it.

6. Collectibles are just that, things that you collect that if sold could make you a great deal of money. Examples are paintings are considered collectibles. Your huge wine cellar could be considered as a collectible. What about your collection of vintage cars? Of course. So, if you have a Rembrandt hanging on your wall then you could finance your (very good) retirement on that but you would need a lot of knowledge for that.

Finally I must talk about Alternative Investment Strategies. These are things such as hedge funds. Some people consider it a asset class in itself but in theory it is another way of managing your money.

We have gone through the different asset classes. Next time let's  see how it all fits together.

Investing 101 (Part 2)

Last time we were introduced to the six asset classes. So let's have a look at each of them.

1. Cash - Cash is a means of exchange and a store of value. You put your money in the bank for example and they pay you interest at a rate that is just above inflation. In Japan that is very little with interest rates advertised at some places as being 0.1%. Not really the deal of the century.

2. Bonds are when you lend your money to the government or some company. They pay you interest and at the end of the term they return your money. Bonds generally pay interest higher than the bank because naturally if they didn't then any would-be investor would choose the bank as the bank has a reputation of being a little bit more safe and secure.

3. Equities - Equities or stock or shares depending on what part of the world you are in are an example of investing where you become owner or part owner of a corporation. You participate in the profit and loss of that company.

These three asset classes are linked. They are linked by three things, first of all they are linked by inflation which is the rise of the cost of goods and services over time. They are linked by time and they are linked by your base currency. Your base currency is the currency of the likely end use of your money. For example if you are saving for your retirement in Hawaii then your base currency would be American dollars. If you were saving for your children's education in Sydney then the Australian dollar would be your base currency.

Next time we will go through the final three asset classes and we will see how they all work in the financial planning process.

Investing 101 (Part 1)

Buy low and sell high. Beat inflation in your base currency. These are the basic things to be focused on when you start investing. You buy when the market is low and sell when it is high. That is easier said than done. Many people say they will wait until the market gets better before they will start to do anything. Fair enough but you could miss your chance to make that real killing so to speak. How many people would have had the guts to invest money in February/March 2009? I would say not many.

Anyway I'm getting ahead of myself. There any many different investment products out there and the choice can be overwhelming which is why some people hire financial planners to help them. They don't have the time or expertise to do it themselves.

Don't be intimidated by the many hundreds of investment brochures out there. If you open them all and go through them you will find that they invest in six different asset classes. These asset classes are:

1. Cash
2. Bonds
3. Equities (stocks or shares)
4. Property (Real estate)
5. Commodities
6. Collectibles.

Next time we will look at each of these separately.

Kia Kaha 頑張れ

It has been a very unforgettable six weeks since my last post. When I use the word unforgettable I don't use it in a good sense. Firstly Christchurch in the South Island of New Zealand was rocked by it's second major earthquake in six months. Almost 200 people from all over the world lost their lives in this tragedy. With New Zealand being such a small country most Kiwis knew someone who was directly affected by the earthquake. The New Zealand community here in Japan was shocked by this but little were they to know that that wasn't the end of the story.

Mid afternoon on Friday the 11th of March 2011 will not be forgotten by the people who experienced the biggest earthquake in Japanese recorded history. The earthquake centred off the north eastern coast of Honshu created a massive tsunami which devastated the Tohoku area. At the time of writing more than 10,000 people have been confirmed dead and more than 20,000 are still missing. I can not begin to comprehend the suffering and shock that the residents of this area are experiencing at the moment. I only hope that the people of Tohoku can get their lives back to normal sooner rather than later. Watching the pictures on television reminded me of the force of Mother Nature and how insignificant we really are. Also the things we worry about on a daily basis are minuscule compared to challenges the people of Tohoku are going to face in the coming months.

Kia kaha Christchurch.
頑張れ東北。