Every investor begins their first portfolio nervous and not knowing very much. If you have a desire to learn the basics, however, and are committed to constantly improving your knowledge base, over time you will have a portfolio of stocks (and perhaps other financial instruments) that you are happy with and confident in. Below are four tips for building your first portfolio.
Consult the Experts
While you should always do your own due diligence any time you invest your money, there is always someone with more information and better insights than you out there. When you are just starting out and building your portfolio, anyone who has been doing it longer is very likely someone you could stand to learn a thing or two from.
Thanks to the internet, there are now more options than ever to see inside the minds of some of the world’s most successful and experienced investors, either by following them on social media or subscribing to their analysis, advisory and stock picking services. Even if you don’t follow their advice all the time (or at all) you gain valuable insight into how they evaluate their picks and how you can apply their metrics and criteria to your own picks moving forward.
Determine Your Appetite for Risk
When investors and financial services professionals talk about someone's appetite for risk, what they are referring to is how comfortable an investor is with the risk that they might lose some or all of their capital. A wide range of factors determine what your appetite for risk is or might be. Your age, experience, income and ability to handle the stress of investing all come into play.
Spend some time pondering these things when deciding on what assets you want to include in your portfolio. An older person nearing the age of retirement is likely going to be unwilling to make the same kinds of risky bets a single, gainfully employed 30-year-old is. A person investing some of their life savings is going to be more worried about taking a loss than someone investing their disposable income. Different stocks come with different risks.
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Diversification
One of the fundamental rules of investing and building a portfolio is that you want to diversify your investments across a variety of asset classes and industries so that you are not overexposed to the misfortunes of any particular one. If your portfolio is tech-heavy, or overly weighted with a single precious metal, a market downturn in either of these areas will have a disproportionate effect on your total holdings. If you are just starting out, it is a good idea to begin by reading some of the many popular books explaining these concepts.
Explore the Simulators
While the modern markets are almost unrecognisably more sophisticated and complicated than the pre-digital-era ones were, the major upside of just starting your investor journey in the 21st century is that you have more information and learning opportunities than ever before in the palm of your hand. One of the best methods to get a feel for investing and how to start putting together a portfolio is to use one of the many investment simulators out there. Most are completely free and when you sign up for a brokerage account with a financial institution, they usually have their own proprietary simulator that will give you fake money to play around with, allowing you to observe how investments work and behave in real-time.
Conclusion
Once you build your first portfolio, it will rarely be set in stone. Over time, your appetite for risk will change, your confidence in your ability to read and anticipate the market will improve and your knowledge of general investing and financial analysis principles will allow you to make more informed decisions about what to include in and exclude from your portfolio. Keep the above tips in mind when starting out and create a sound portfolio you are happy and comfortable with.
However, are there also cases in which these practice accounts would be used by more experienced traders, and if so what are they?
The Features That They Offer
To understand why people of different experience levels use demo trading accounts, we need to first of all take a look at what features they include. Generally, they will offer a full range of functionality, allowing users to carry out similar trades to those which they would make with real money.
Some trading services offer a fully functional demo platform that can be accessed on desktop or mobile devices. Support and education is also provided to users, including a selection of webinar sessions.
Through demo trading accounts, users can trade products based on stock indices, commodities, forex, and economic event markets. They can carry out the full transaction from start to finish, letting them see how much money they likely would have made or lost on a comparable real transaction.
A Way to Try Out New Strategies
For an experienced trader, perhaps the biggest reason for using a demo account is to try out new strategies. For instance, it could be used to attempt an advanced scalping forex approach, or to use triangular arbitrage techniques.
Most traders will have one or more strategies that they feel completely comfortable with. Yet, in different economic situations it may be necessary to turn to new strategies that they have never used before.
By doing so with a demo account, the risk of any financial loss if it goes wrong is removed. Any mistakes that the trader makes on the new strategy adds to their learning experience without causing any negative effects.
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The Option of Looking at Different Markets
It may also be the case that a trader is experienced in one market but would like to diversify into another. One example is that they may be a forex expert but decide that they want to try and make money from stock market trading too.
This could happen because they feel that the market they currently focus on doesn't offer good investment opportunities right now. It could also be the case that they want to test themselves or just explore new ways of using their skills to potentially make more money. There are advantages and disadvantages to both stock market and forex trading to be considered.
In this situation, their existing knowledge will be useful, but there will be gaps in their expertise that need to be filled in. This could be in terms of learning new strategies or in discovering the tools that give them most value in their new type of trading.
Every Trader Can Use a Demo Account from Time to Time
An experienced trader might go through long spells in which they don't have much need for a demo account. Yet, they are also likely to find that it is something that comes in handy at certain times.
Jamie Johnson, CEO of FJP Investment, analyses the state of the property market and how it is likely to change in the near future.
On 6 July, chancellor Rishi Sunak delivered the so-called ‘mini-budget’. As part of his announcement, a series of reforms were introduced as part of the government’s strategy to boost economic activity. The real estate market is key driver of national productivity and growth. Recognising this, the chancellor announced the immediate introduction of a Stamp Duty Land Tax (SDLT) holiday.
What this means is that all buyers of property less than £500,000 in England and Northern Ireland are exempt from paying the tax until 31 March 2021. However, additional surcharges for second home purchases still apply.
The government backs property investment
The impact of this new initiative was felt almost immediately. Papers reported a ‘mini-boom’ in UK property as asking prices rose and buyers returned to the market in droves. Property listing site Rightmove recorded a 2.4% increase in the average asking price of properties being listed during the month of June. What’s more, the number of inquiries from potential homebuyers increased 75% year-on-year.
While it is still early days, all this indicates that the government’s policy has so far has proven to be a success. Demand which was previously being suppressed due to COVID-19 concerns is flooding back to the market. After months of property price decline and housing market inactivity, such impetus should be heartily welcomed.
The announcement of the SDLT holiday also followed Prime Minster Boris Johnson’s ‘build, build, build’ speech, pledging £5 billion to invest in housing and infrastructure. Collectively, these measures are part of the government’s broader vision to meet both the future property needs of the country while at the same time instigating a post-pandemic economic recovery.
Demand which was previously being suppressed due to COVID-19 concerns is flooding back to the market.
Priorities are shifting but demand remains the same
Of course, the pandemic will have lasting effects on society at large; and the property market is no different. As working from home becomes the new norm for many, the need to live within commutable distance from your company is being brought into question. The aforementioned statistics provided by Rightmove showed interest in London properties had only risen by 0.5%, implying that many homebuyers are now seeking properties away from London in light of the COVID-19 pandemic.
Other factors may disincentivise buyers away from London as well. Back in March, Rishi Suank announced a very different type of SDLT adjustment, an additional 2% surcharge for overseas buyers – due to come into effect in April 2021. Given just how integral foreign buyers are to the Prime Central London (PCL) property market, accounting for 55% of PCL transactions in H2 2019, the additional surcharge risks discouraging foreign investment into the capital.
With the lucrative PCL property market becoming less and less attractive for high-end developers for the reasons outlined above, house price growth outside the London commuter belt may begin to grow exponentially in the coming years.
But regardless of where your property portfolio is located, UK property is still proving itself to be a resilient asset class in the face of global crisis. Global property experts Savills confidently stuck by their prediction of 15% growth of UK house prices by 2024, even as the UK experienced the worst of COVID-19’s economic impact.
Their reasoning, which I fully agree with, is based on the idea that the strong buyer demand we saw in January 2020 – which facilitated the highest level of property price growth since 2017 - did not simply vanish when COVID-19 arrived. Instead, this demand was suppressed due to pandemic uncertainty, ready to return once coronavirus was in retreat. Now, bolstered by the SDLT holiday, the UK property market is set to enjoy this influx of previously suppressed demand; and house price growth is sure to follow as a result.
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FJP Investment recently carried out a survey of 850 investors to confirm this, and our findings supported this idea. 43% of those whom we spoke to stated they weren’t making any large financial decisions until they believed the coronavirus pandemic to be entirely contained. It follows that as COVID-19 cases in the UK decrease, these investors will gradually return to the market – increasing general activity and facilitating a prosperous property sector once again.
When this demand returns, I look forward to witnessing the changes that COVID-19 has inflicted upon the UK’s property sector. Will this surge in interest of non-London property continue, and where will the new house-price-hot-spots of the UK be? I, for one, am excited about finding out. As COVID-19 case numbers decrease, and investor confidence rises, we’ll all be enjoying the benefits of a resurgence of UK property sooner, rather than later.
Now we know that certain businesses can be seen as nonessential, and in such a large-scale health crisis such as the one we are in now, some are practically deemed obsolete. Those that suffered the worst are the travel, retail, restaurant, and events industries.
The anxiety that this has caused individuals the world over is unprecedented. Those who had enough emergency money stored up could pull through the uncertainty of the months ahead without a hitch. Now, the money garnered from employment is as unreliable as rain in a drought – as most companies from affected industries have enacted pay cuts, forced leaves – some have even declared themselves bankrupt.
It’s high time that you take a look at your finances too, and assess if you have been efficient in your investment decisions in the recent years. Now, more than ever, saving up for a rainy day is vital to tide you over and even keep your sanity in the middle of the large-scale ambiguity we are all living through now.
Here are some reminders on how to be wise about your investment decisions, no matter if you’re only beginning or have been in the business for quite a while:
1. Make sure to have an emergency fund stored up
Common wisdom is to have at least six months' worth of your income stored up as liquid in case any immediate spending is necessary. This should be the first thing you have in your portfolio in order to help you pull through when economic uncertainties inevitably hit.
2. Educate yourself on options that you can afford
There are many different ways you can invest – such as time deposits, government bonds, stocks, dividend-paying stocks, real estate, and money market accounts, among myriad others. Create a goal to build your portfolio, take into account all the risks and returns of each instrument, and diversify your mix. This will ensure more security for you in case of fluctuations in value.
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3. Do your due diligence on whichever kind of instrument you choose
It is best to consult with an experienced broker of any of the instruments you wish to put your money on, so that you can get a better feel of which one is best for you. Do not be fooled by market insights, payout ratios, and other seemingly promising percentages that can blind your decisions. These numbers may mean something different from what they connote.
One route people choose to ensure high returns even with low initial investment is going for stock investing with accompanying dividend payouts. A dividend stock screener can help you understand the payout ratios, a company’s stability over time, growth rate, and other things that are important in making your decision.
4. Diversify across industries
As we can all see, industries that were soaring in profits for decades have now gone down. No matter how tempted you are to get into a fad that seems promising, make sure to keep a diverse mix across industries. This will help protect you from any unpredictable downturns that may come your way.
Keep these tips in mind as you move forward with your investment decisions. They may be conservative, but they will help you have a solid fallback that you can rely on when the salary or income you may have relied on each month becomes compromised.
Iskander Lutsko, Chief Investment Strategist and Head of Research for ITI Capital, offers Finance Monthly his perspective on how US markets are likely to trend in the latter half of the year.
Throughout the first six months of 2020, world markets have been volatile to say the least. Global stock index values have so far been characterised by record beating losses and resurgent gains; The Dow Jones and FTSE 100, for example, dropped more than 20% in March, but have already regained much of those losses in the time since. Additionally, the Nasdaq recently hit a record high, and the S&P 500 reached a local high at the start of June below an all-time high on 19 February 2020, and a severe dip in March.
The primary reason for this market volatility is not the US and China trade-related disputes or any other geopolitical market-sensitive tensions which have become an essential part of the global volatility environment since 2018. Quite clearly, markets have been impacted most prominently by COVID-19, and none more so than in the US, which is the world’s largest economy, reserving currency account for 65% of all global transactions – and now also the epicentre of COVID-19, accounting for 26% of total recorded infections worldwide.
All eyes have been on the US in recent weeks. Controversial decisions to reopen certain aspects of society and reduce lockdown measures have seen the number of infection rates rise across the country after a slight decrease. As a result, US equity markets have mostly been driven by HF flows being reallocated into IT stocks, primarily in those that benefited from quarantine. Hence, cyclical companies are trading, on average, 30% below its pre-COVID levels, as opposed to IT companies and biotechnology companies which recorded historical highs.
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However, this is not a second wave; it is a mid-cycle of the first. As in the sea, waves are usually preceded by a trough, and we don’t expect the official trough of the first wave to arrive until at least the end of August. From there, we might expect a second wave of the pandemic to hit in November or December 2020. Of course, this is all speculation, and entirely dependent on weather, vaccinations and lockdown measures – however, as analysts, it’s our job to predict the most likely scenario based on the data that we have, analyse fluctuations and predict market movements accordingly.
Thus, we have crunched the numbers and come to the conclusion that the peak of the current market run will last two months, from the end of July until the end of September, coinciding with a hopefully declining number of cases. Before that, correction and consolidation are likely to dominate, implying that there will be high demand for gold and US corporate bonds, bolstered by a strong US dollar positioning against currencies in Europe and emerging markets.
As soon as investors gain confidence, either through success stories over vaccine trials or new evidence of the infection rate declining in the US and other countries, abundant cash and excess global liquidity from central banks should push the S&P 500 to record highs. However, for that to happen, countries will need to bring back temporary quarantine and policy measures to reduce further risks of the virus spreading.
According to our base scenario, we could see the S&P 500 heading to 3500 points by end of September, pulled by oversold companies from the production and service sectors of the U.S. economy.
As soon as investors gain confidence, either through success stories over vaccine trials or new evidence of the infection rate declining in the US and other countries, abundant cash and excess global liquidity from central banks should push the S&P 500 to record highs.
But risk will not fade away entirely - it’s worth also remembering that the US presidential election is imminent. Even in a ‘normal’ year this election would be considered unique, as former Vice President Joe Biden faces off against Donald Trump, whilst celebrities such as Kanye West have put their two pence in (and quickly withdrawn it), it’s fair to say that US politics has, and will continue to play a role in market volatility in 2020.
If Biden wins, the market will probably see strong sell-off, as his first policy actions will be aimed at restoring corporate taxes to levels seen before Trump's cuts, though it’s worth mentioning that this will be gradual, as it would be unwise to raise taxes at times when 18 million are still unemployed in the USA compared to pre-COVID numbers. Biden also plans to significantly reduce budget spending, which could top contribute to an unprecedented 20% of GDP this year, up from 4.7% in 2019.
Furthermore, if no vaccine will be in place it’s likely that the second wave of the pandemic could come in November or December, coinciding exactly with the presidential election. Hence, markets will be extremely shaky during this period, the extent of which can not be accurately predicted until it’s closer to the time, but certainly worth remembering for keen eyed investors and traders.
Therefore, for short term returns, there are good chances of buying cyclical stocks at the dip now, presenting lucrative opportunity for opportunistic investors. However, in these unprecedented times, almost anything can happen, and it is strongly advised that asset managers and traders looking to expand their portfolio seek professional advice aided by cutting edge technology to ensure that they are making the most informed decision available to them.
To hear about Bermuda-based Markel CATCo Investment Management, Finance Monthly reached out to the company’s founder and CEO – Tony Belisle. Markel CATCo builds and manages concentrated, diversified and fully collateralised portfolios designed to deliver meaningful market outperformance for their clients and investors. The company was launched in 2011 and today manages over $4 billion in assets under management (AuM), which are deployed into catastrophic risk protections written to reinsurers around the globe. The protections cover properties exposed to hurricanes, earthquakes and other natural and man-made disasters.
As a professional with over 30 years of insurance and investment experience – how has the sector evolved in the past few decades?
My career includes work in the fields of pensions, life insurance and investments, but the last 17 years have been focused on the property catastrophe reinsurance space. Back in 2001, following the World Trade Centre attacks, I began offering cash collateralized protections to reinsurers, as I saw the need for certainty of claims payment after large catastrophes. There simply was not enough capital residing in traditional (rated-paper) reinsurers to ensure payment following one or more super catastrophes. Today, in addition to the vital role played by traditional reinsurers, there are more than 50 reinsurance funds with over $75 billion in capital. This makes it far more likely that a region struck by disaster will be able to rebuild, which is, obviously, good for society. Of course, pension funds around the globe are the largest source of this new capital base.
You founded (Markel) CATCo Investment Management in 2011 – what were the key challenges that you were faced with? How did you overcome them?
The biggest challenge was not only in raising the capital, but, also, in finding enough reinsurance buyers to purchase our unique global protections. We launched in January 2011 and, in the first quarter of that year, there were large earthquakes in New Zealand and Japan. This was followed by the largest recorded insured flooding loss in Thailand. We were then flooded by interest from reinsurance buyers who did not want to be exposed to these events to the same extent going forward. As our pricing increased as a result of these events, this attracted significantly more investor capital. The toughest challenge was then to travel the globe incessantly to educate potential investors, so that we could meet the dramatic increase in client demand for our unique product.
What were the goals that you arrived with when founding the company. 6 years later, would you say that you have managed to accomplish them?
Our goal has always been to offer unique protections that are capital-efficient for the buyer, but that also represent efficient use of our investors’ capital. This is a delicate balancing act, but one which we have been able to manage over the years through continued product innovation. We also hoped to become a meaningful provider of capital within the industry and reach $1 billion of AuM by our 5th year. Unbelievable to us, we grew to over $1 billion in our first year and are now well over $4 billion of AuM. However, we only raise capital just to meet buyer demand, as opposed to raising capital and then hoping to deploy it. We also make a commitment to investors that their capital will always be 100% deployed. If it is not, we will return the excess capital.
What further goals are you currently working towards with the company?
In the past few years, we have launched several new funds to address different appetites for risk amongst our investors and different product demand from certain buyers. As these funds have continued to grow beyond our expectations, we are quite busy managing the current funds. However, we continually consider potential new fund offerings.
What would you say are the company’s top three priorities towards its clients? How has this evolved over the years?
Our priorities, with respect to our clients, have never and will never change. Our focus continues to be to provide the most capital-efficient product offerings, to operate as strategic partners with our clients (we are truly in this together) and to provide responsiveness that is second to none. We have heard repeatedly from our clients and brokers that we are the most responsive reinsurer in the world. We take great pride in this.
What do you anticipate for the company in 2017 and beyond?
Number one is to continue to work closely with our clients as strategic partners. Our fortunes and misfortunes should be aligned. At the same time, we must ensure that we are providing adequate returns to our investors and, most importantly, that we are managing our exposures carefully. We have also grown from a staff of three at launch in 2011 to over 20 employees today. Ensuring that all staff are properly trained is an on-going effort and one that we take very seriously.
What was the rationale for the sale to Markel Corporation in late 2015?
One chief concern to some of our largest clients was that they wanted to know that CATCo would survive beyond my working career. And, one of my biggest concerns was that this company should survive, for the benefit of all of my employees, beyond my working career. The best way to address both of these concerns was to find a strategic partner who could acquire the business. This really meant that this partner should not be from the capital markets space, but, actually, an organisation that was very active in insurance and/or reinsurance, a partner who truly understood the business and could provide financial and resource support. With the help of Willis Capital Markets, we identified Markel Corporation as the most suitable partner. Both parties recognized early on that our cultures were very similar, so the integration into Markel has been rather seamless.
