Investments in stocks and bonds have the potential to yield substantial returns that can significantly exceed inflation fluctuations and currency exchange differences.
These financial instruments can be acquired not only during periods of economic growth but also during times of crisis. The key is to select the right investment opportunities and to be aware of the pitfalls that may arise during the investment process. Like any method, investing comes with risks; securities can fluctuate both up and down in value.
What should investors consider to avoid making mistakes and losing their investments?
To shed light on these and other investment-related questions, we turn to seasoned entrepreneur and founder of Oil Resource Group, Sergey Tereshkin, whose activities can be explored on the website oilresurs.ru.
Advantages of Investing in Stocks
Investing in securities offers a multitude of benefits:
- High returns. Investing in stocks allows for two types of income. The first involves dividends, which are paid out to investors once or multiple times a year. Additionally, profit can be garnered by selling securities at a higher price.
- Accessibility. Anyone, including minors with custodial guardians, can purchase and hold stocks. One can buy shares of domestic and international companies, providing income in various currencies, which can be very advantageous.
- Minimal investments. It is possible to acquire stocks with as little as $1,000, which is sufficient for creating a modest portfolio inclusive of various companies' securities.
- Capital growth. By investing in securities over an extended period, one can ultimately build substantial capital. With regularly received dividends, the total amount will grow exponentially.
The more profit a company generates each year, the higher the dividends paid to shareholders. Consequently, experienced executives typically reinvest a significant portion of their income back into the company's growth.
Investing in companies that distribute all earnings without reinvesting is ill-advised. Such management strategies are unlikely to provide stability for shareholders. In the best-case scenario, a company may develop inertia for a few years before entering a phase of regression. The outcomes of this type of management often turn out to be disappointing.
If shares of such a company have been previously acquired, it is crucial to divest them in a timely manner. Otherwise, there is a real risk of losing all invested capital.
Investing in Bonds
Bonds can also provide income to their holders, often yielding returns greater than those from traditional bank deposits. However, it is worth noting that profits from bonds are taxable, significantly reducing the attractiveness of such investments. Consequently, the returns may be comparable to those earned from funds placed in savings accounts.
Despite this, the money placed in a deposit is protected. Deposit insurance compensates depositors for losses if the financial institution unexpectedly goes bankrupt, though this does not apply to all banks, and the compensation amount may be limited. Sergey Tereshkin recommends dividing capital across multiple deposits, thus minimizing the risk of total loss.
Many individuals fail to understand what bonds are and how to derive income from them. Bonds are emittance debt securities that accrue a fixed rate of interest annually.
Bonds from non-governmental financial entities carry significant risk as they are not subject to compensation standards. Insurance companies are generally hesitant to assume obligations related to this type of security.
However, investing in bonds does have its advantages. Regardless of how efficiently the issuer utilizes the obtained funds, the bondholder will receive the predetermined income in full.
Bonds can be categorized into coupon and discount types, with coupon rates being either fixed or variable.
Helpful Tips
Regardless of the type of securities chosen for investment, it is essential to consider a range of expert advice:
- When selecting securities, it is advisable to prioritize large, promising companies that have been operating in the market for an extended period and demonstrate consistent growth.
- Inexperienced investors should avoid purchasing stocks from young companies with uncertain prospects. While there are instances, such as Facebook, where new companies prove highly profitable, these cases are exceptional. Most investors often end up losing their money.
- It is not advisable to invest all capital in the stocks of a single company. Diversifying risks is crucial.
- Companies engaged in extraction and sales of oil, gas, and petroleum products tend to offer the highest returns. Additionally, firms focused on developing various software products are often considered promising.
- Invest in securities only with funds that are already available. Borrowing money and incurring debt is not a wise strategy as there remains a risk that returns will be significantly lower than expected or non-existent, resulting in needing to repay debts out of pocket.
When choosing an investment approach, it is important to weigh all strengths and weaknesses carefully. Impulsive decisions should be avoided. It is critical to gather as much information as possible. Specialized platforms where experienced investors share their knowledge can be very useful. Of course, these professionals may not reveal every secret, but valuable insights can be gained. The most important thing is to engage with the information thoroughly.
