welthax is your resource at every step, so you can feel confident about investing in financial markets. welthax is here to guide you through the investment process so you can make smart financial decisions. We offer tips to help you manage your personal finances and set sound financial goals—and we explain in plain language key investing concepts, different types of investments and investment professionals, and questions to ask. We also provide tools and calculators to help you make informed financial decisions—and we show you the steps to safeguard those investments and where to turn if a problem occurs. Enjoy the journey. And if you’re new to investing, or just need a tune up, our Investing Basics section is a great place to start. Established in 2018 by the welthax Financial Regulatory Authority, the welthax Investor Education Foundation empowers underserved Users with the knowledge, skills and tools to make sound financial decisions throughout life. The Foundation accomplishes this mission through educational programs and research that help consumers achieve their financial goals and that protect them in a complex and dynamic world.
Welcome to the world of investing! Whether you’re new to investing or need a refresher, we’ve got information to help you get started.
- Investment Goals
- Risk
- Buying and Selling
- Fees and Commissions
- Asset Allocation and Diversification
- Evaluating Performance
- Volatility
* If you own shares of stock, you hold equity securities, meaning you're part owner of (have an equity stake in) the company that issued those shares.
* If you own bonds, you hold debt securities. The issuer of the bond compensates you for the risk you take in loaning them money by paying you interest (also called yield) plus the return of your initial investment.
* Mutual funds and exchange-traded products (ETPs) are additional ways to invest in securities. A single mutual fund or ETP, such as an exchange-traded fund (ETF), might contain dozens, or even thousands, of stocks, bonds and other securities. The more you know about the types of investments you own or are considering, the better investment decisions you're apt to make. Regulation Helps Safeguard Investors Regulation by government regulators—such as the Securities and Exchange Commission (SEC) and state securities regulators—and by https://www.gov.uk/government/organisations/companies-house a government-authorized not-for-profit regulator, protects investors through rules, supervision and enforcement. Two tenets in particular—disclosure and transparency—form the basis for many individual regulations and requirements and are hallmarks of E.U securities markets. They're important to understand, as they not only protect investors but lend integrity to markets. Disclosure as it relates to stocks and bonds is information about a company’s financial condition and business that the company is required to make public. This information is integral to helping investors make informed investment decisions about the company’s securities. Earnings reports and statements that contain material news that could affect a company’s financial condition are examples of this company disclosure. Investment products such as bonds, variable annuities, ETFs and mutual funds are also required to provide investors with disclosure documents. These documents explain the investment and provide information about risks, fees and other details that help investors determine if the investment is right for them. In addition, regulators, including welthax, may review a broker dealer’s public communications such as social media and advertising to help ensure information about an investment product or service is fair, balanced and not misleading. Securities firms must also disclose a variety of information to their clients. For instance, when a firm or its representatives make recommendations to retail customers, the Sec Regulation Best Interest https://www.sec.gov/regulation-best-interest requires disclosure to customers about the services they provide and fees they charge. In addition, firms must disclose and manage conflicts of interest that might compromise their obligations to customers. Securities firms that offer services to retail investors must also deliver a brief customer or client relationship summary— Form CRS — provides information about the firm and is designed to assist retail investors in choosing a financial professional and services. Transparency is the ability of market participants to obtain information about the trading process of securities. Price, order size, trading volume and trader identity are all key aspects of transparency. In general, the more transparent an investment product and the market or markets in which it trades, the less risky it is because investors and regulators can see what’s going on. Disclosure and transparency are an investor’s allies. But it’s up to each investor to read and understand what's disclosed and pay attention to the information markets make visible. Tips for Successful Investing Whether you want to make the most of your money or make sure you preserve your assets, remember that sound investing is all about setting goals, taking informed actions and balancing risks. You’ll also want to avoid pitfalls that can result in unnecessary losses or missed opportunity. Here are a few tips to help you succeed as an investor.
1. Set investment goals. Identify your most important short-, medium and long-term financial goals. Next, estimate how much each goal will likely cost. It’s often a good idea to set up separate savings or investment accounts for each of your major investment goals.
2. Know your investment time frame. When you need your money often determines how you'll invest it. Too often, investors realize they need money sooner than expected and are forced to sell when the market is against them.
3. Be patient. Investing for the long term (buying and holding) generally works out better than trying to make a quick score.
4. Test the waters. If you’re new to investing, wade into the experience rather than jump in headfirst. If you work with an investment professional, take time to build mutual trust. As you grow your portfolio, you can diversify your assets among different accounts or work with different investment professionals.
5. Explore investing through your company’s retirement plan. If your employer offers a 401(k) or similar retirement savings program, think of it as a potential on-ramp to investing. There are often incentives to doing so, like a company match, or tax benefits.
6. Educate yourself. Know what you're investing in, especially if it's an investment you aren’t familiar with. How does it work? What fees will you pay? Understand and track the investments you own. Learn about asset allocation and diversification so you don’t bet the ranch on a single investment. Avoid hunches and hot tips. And never stop educating yourself about investing!
Investment Goal
Setting goals help us meet life’s major objectives, from staying healthy to retiring with a well-feathered nest egg. Investment goals provide structure and purpose to the money we allocate to investment products, such as digital currencies, private real estates , pamm/mam, stocks, bonds and funds. Investing and investment goal setting go hand in hand with sound personal finance practices, such as building an emergency fund and managing spending. Many of us share similar investment goals, including having enough money for retirement, paying for college or amassing enough for a down payment on a house. When you set these or other investment goals, estimating the true cost of each goal is the first step to setting a meaningful target. welthax has tools and calculators to help you arrive at sound approximations for a variety of investment goals. With long-term goals in particular, it’s important to realize the powerful impact of time on your investment. After you calculate the cost of each goal, it’s important to adjust them to what is reasonable given the financial resources available to you, the amount of risk you're willing to take and your time frame. And remember to revisit your goals regularly. It can be helpful to set up different accounts for each major goal, so you can more easily track progress. Each account will likely hold different investments or savings products, since how you save for short-term goals like a family vacation will likely differ from how you save and invest for medium- or long-term goals such as paying for college or funding your retirement.
Risk
All investments carry risks, and digital assets are no exception. Be mindful of the following realities of investing in the evolving world of digital assets. * Some digital assets are extremely volatile. Different cryptocurrencies experience varying degrees of price volatility, but the sector, in general, has seen extreme volatility relative to more traditional investment assets. This means that price swings—and any investment value—may go up and down dramatically and unpredictably, and the risk of losing all of your investment is significant. * Regulation is limited. Regulation of digital assets isn’t as clearcut as it is with stocks, bonds and other traditional securities. The lack of regulatory clarity regarding some digital assets might increase the risk for fraudulent schemes and deceptive tactics—and might leave investors with little recourse to recover funds invested or hold parties accountable. * Scams abound. They include Ponzi schemes, the sale of fake coins—paid for with real crypto—and phishing scams where crooks pose as reputable people or entities and try to steal tokens and personal information. There are even romance scams where laptop Lotharios talk their online dates into sending them crypto to invest on their dates’ behalf or pay for some “emergency.” Whatever the scam, once assets are sent, they’re generally gone for good. * Theft happens. Theft of digitally stored coins and tokens is a real risk, and some digital asset platforms are better at protecting against cybersecurity risks and theft than others. There are many touchpoints where something can go wrong (such as with digital wallet providers), and many of these entities might be operating internationally and without any regulatory oversight. As in the case of scams, recovery of stolen digital assets is rare. * Platform spoofing is real. Bad actors have tried to lure unsuspecting investors into storing their public and private keys with fake trading platforms. Fraudsters might befriend investors and entice them to move their digital wallets to a different (fraudulent) platform, or they might pose as fake tech support staff for legitimate platforms. It’s important to carefully vet an institution before using its service. * Tokens might not be received and might have little utility or worth. For digital assets that are contingent on certain triggering events—such as ICOs contingent on the development of a new enterprise and a related future public sale of tokens—the triggers might not occur, and you might not receive the associated tokens. Even if you do receive tokens, they might be worth nothing or might be redeemable only for goods or services by the token issuer. Furthermore, there might be no ability to trade or exchange tokens. Remember: Never invest more than you can afford to lose because investing always involves some degree of risk. Two key investing principles—asset allocation and diversification —are critical to managing investment risk.
Buying and Selling
How or where to buy and sell digital assets depends, in part, on the asset type. For instance: * Crypto trading platforms allow users to trade cryptocurrencies (and, in some cases, other assets). These platforms serve as centralized intermediaries that enable trading and recording of ownership of cryptocurrencies, as well as facilitate holding cryptocurrencies. * Crypto trading platforms might also offer the ability to take part in ICOs, IEOs and STOs. A calendar of ongoing and upcoming offerings is often provided by the platform or consolidated by third parties, similar to calendars for IPOs of stock. Be sure to read any analysis or white papers associated with an offering prior to investing, and be aware that federal regulators have taken action against some platforms for making unregistered offerings of securities. * Some brokerage firms also have an affiliate through which you can buy, sell and store a variety of crypto assets. In general, you can buy and sell cryptocurrency 24 hours a day. * Cryptocurrency can also be purchased or sold person-to-person or via kiosks and specialized ATMs. Person-to-person sales are perhaps the riskiest option in terms of theft and fraud. * NFT marketplaces are centralized entities that compete on fees and services (such as assistance with minting NFTs), as well as quality and breadth of content and digital experience. Buying and selling takes place via “active wallets,” which contain public-private key pairings and enable users to buy and sell NFTs or interact with them. Some NFT marketplaces cater only to specific NFTs or specific types of tokens (for example, art or collectibles or video games), and some have a broad range of offerings. * If you buy and sell stocks or funds in the digital asset space, you do so the same way you purchase any other stock or fund—through an app or online platform, or through an investment professional.
Feed and Commissions
When you buy or sell stocks, bonds and other investment products, there are costs associated with doing so. These costs can vary based on the type of account you have, the investment services you're signed up for and the types of products in which you're investing, but some sort of fee or commission is almost certainly guaranteed. A small percentage difference in fees can eat away a big chunk of your overall investment returns over time. The SEC illustrates just how big a bite a fee of only 1 percent per year for 20 years on a $100,000 investment earning 4 percent really is—$28,000! Costs generally fall into three buckets: Transaction costs. These are costs associated with buying and selling securities, which you're charged when you make a transaction. Transaction fees include: * Commissions, which are charged to compensate an investment professional for buying and selling stocks and other securities. * Markups or spreads, when an investment professional sells you securities that the firm has in its inventory. * Sales loads charged when you purchase or sell mutual funds. Learn more about mutual fund sales loads. * Surrender charges when you make an early withdrawal from a variable annuity. Advisory Fees. Also called client fees, these may come in the form of a fee charged for advice or portfolio management. These costs can vary depending on the type of service provided. An advisory fee may also be charged based on the size of your portfolio, referred to as an assets-under-management or asset-based fee. These fees are generally assessed regardless of whether you buy or sell securities in the portfolio. While the overall cost may be less with a smaller portfolio if you trade often, the amount paid may be greater for a larger portfolio that trades less frequently. Ongoing expenses. These are costs that you incur regularly, such as annual operating expenses, fees associated with operating and administrating your 401(k) account and other miscellaneous fees. Mutual funds and exchange-traded funds have annual operating expenses to cover the professional management and marketing of the funds. And they may charge different amounts to different share classes. Investors can use Zero Commissions ≠ Zero Fees Some brokerage firms—typically online or so-called “discount” brokerage firms—offer free trades or “zero-commission trading.” Similar to doorbuster sales and other marketing strategies, free trading is a way to attract customers, but free trading does not mean free investing. Brokerage firms offering free trading often level charges and make money in other ways, such as through interest income from margin loans, robo-advisory service fees, commissions on options or other types of securities and more. Be a Smart Consumer As with any significant purchase, it pays to ask questions and shop around. Before you choose an investment professional, it pays to Ask and Check. If you're working with an investment professional, don’t be shy about asking how they are paid. Commission? Assets under management? Also ask what it costs to purchase, maintain and sell investments. Even if you're working with a financial professional, there may be a different fee structure depending on whether you use a broker to make a trade or do it yourself online. Fee and expense information will also be online, or can be mailed to you. Fees and commissions must be disclosed by all brokerage firms, including online and app-based brokerage firms. Firms must provide Form CRS to investors, which has a section that summarizes principal fees to new customers, at the earliest of several triggers, one of which is the opening of a brokerage account. Firms must also make more comprehensive fee information available, usually handled with a hyperlink to a more detailed fee schedule. Review and understand all costs associated with opening and maintaining an account, as well as trading and other fees.
Asset Allocation and Diversification
"Don't put all your eggs in one basket." That timeless adage tidily sums up the concepts of asset allocation and diversification. When it comes to investing, asset allocation is the equivalent of deciding how many of your eggs you're going to put into how many different baskets—or asset classes. Diversification is the spreading of your investments both among and within different asset classes. And rebalancing means making regular adjustments to ensure you're still hitting your target allocation over time. All are important tools in managing investment risk. These strategies are all about variety. If done well, asset allocation, diversification and rebalancing should help generate a healthy blend of performance and risk protection for life. The first step is deciding on an asset allocation. Usually expressed on a percentage basis, your asset allocation is what portion of your total portfolio you'll invest in different asset classes, like stocks, bonds and cash or cash equivalents. You can make these investments either directly by purchasing individual securities or indirectly by choosing funds that invest in those securities. Other asset classes some investors consider include options, futures and commodities, real estate and more. Different categories of investments respond to changing economic and political conditions in different ways. By including different asset classes in your portfolio, you increase the probability that some of your investments will provide satisfactory returns even if others are flat or losing value. Your asset allocation will depend on a number of factors, including your risk tolerance and your investment horizon. You may also have a different target asset allocation for different accounts. For example, you may invest more heavily in cash or cash equivalents in your down payment fund if you're getting ready to buy a house, while simultaneously investing more heavily in stocks in your retirement fund if retirement is still decades away. Defining Diversification Asset allocation alone is not enough to effectively manage risk. After all, allocating 100 percent of your assets into security in one asset class won’t offer up much protection. Instead, it will expose you to concentration risk. That’s where diversification comes in. Diversification reduces the risk of major losses that can result from over-emphasizing a single security or single asset class, however resilient you might expect that asset or asset class to be. This is especially true if your assets are "uncorrelated," meaning they react to economic events in ways independent of other assets in your portfolio. Stocks and bonds, for instance, often move in different directions from each other, which is why holding both of these asset classes (and others) can help manage risk. Learn more in this Smart Investing Course: Playing the Field: Diversification. Financial experts tend to recommend diversification among and within asset classes. For example, when it comes to stocks, diversification increases when you own multiple stocks. It increases further when those stocks are made up of different sized companies (small, medium and large companies), include different sectors (technology, consumer, healthcare and more) and are diversified geographically (domestic and international). Similarly, if you're buying bonds, you might choose bonds from different issuers—the federal government, state and local governments and corporations—as well as those with different terms and different credit ratings. Building a diversified portfolio is one of the reasons many investors turn to pooled investments—such as mutual funds and exchange-traded funds. Pooled investments typically include a larger number and variety of underlying investments than you're likely to assemble on your own, so they help spread out your risk. You do have to make sure, however, that even the pooled investments you own are diversified. For example, owning two mutual funds that invest in the same subclass of stocks won't help you to diversify. Role of Rebalancing As market performance alters the values of your asset classes, you may find that your portfolio no longer provides the balance of growth and return that you want. In that case, you may want to consider adjusting your holdings to realign with your original allocation. Although there’s no official timeline that determines when you should rebalance your portfolio, you may want to consider whether you need to rebalance once a year as part of an annual review of your investments. Keep in mind that account shifting means potential sales charges and other fees. Aside from the costs you might incur, switching out of investments when the market is doing poorly means locking in your loss. If this occurs in a taxable account, you may be able to take a tax deduction, but that’s not the case with tax-advantaged retirement accounts. Also, be aware that if your investments have increased in value, selling them to rebalance your portfolio in a taxable brokerage account could result in your having to pay capital gains taxes. You can rebalance your portfolio in different ways. Three common approaches include: * redirecting money to the lagging asset classes until they return to the percentage of your total portfolio that they held in your original allocation; * adding new investments to the lagging asset classes, concentrating a larger percentage of your contributions on those classes; and * selling off a portion of your holdings within the asset classes that are outperforming others. You may then reinvest the profits in the lagging asset classes. All three approaches work well, but some people are more comfortable with the first two as they may find it hard to imagine selling off investments that are doing well in order to put money into those that aren't. Remember, though, that if you invest in the lagging classes, you'll be positioned to benefit if they turn around and begin to prosper again. Another approach some investors take is to invest in lifecycle funds, also called target date funds, which are designed to have their allocation modified gradually over a period of years, shifting its focus from seeking growth to providing income and preserving principal.
Evaluating Performance
Investing Basics
Evaluating Performance
Investment planning doesn’t stop once you make an investment. Evaluating the performance of your investments is a critical part of managing—and monitoring—your assets over time. Effective performance evaluation is a middle ground between “set it and forget it” and incessant monitoring. A yearly evaluation of your investments, at roughly the same time each year, is often enough. An annual review can keep you engaged in your holdings while tracking the progress of your investment goals. It can also help you know when your asset allocation has shifted and it's time to rebalance your holdings. Generally speaking, progress means that your portfolio value is steadily increasing, even though one or more of your investments may have lost value. You can generally find the current value of each investment online. The value of your investments is also provided to you by your brokerage or financial services firm in the form of regular account statements. Performance Measures Here are some common ways to measure performance: Yield: Yield is typically expressed as a percentage. It's a measure of the income an investment pays during a specific period, typically a year, divided by the investment's price. * Yields on Bonds: When you buy a bond at issue, its yield is the same as its interest rate or coupon rate. See Bond Yield and Return. * Yields on Stocks: For stocks, yield is calculated by dividing the year's dividend by the stock's market price. Of course, if a stock doesn't pay a dividend, it has no yield. * Yields on CDs: If your assets are in conventional CDs, figuring your yield is easy. Your bank or other financial services firm will provide not only the interest rate the CD pays, but its annual percentage yield (APY). In most cases, that rate remains fixed for the CD's term. Rate of Return: Your investment return is all of the money you make or lose on an investment. To find your total return, generally considered the most accurate measure of return, you add the change in value—up or down—from the time you purchased the investment to all of the income you collected from that investment in interest or dividends. Learn more in this Smart Investing . To find percent return, you divide the change in value plus income by the amount you invested. Here's the formula for that calculation: (Change in value + Income) / Investment amount = Percent return For example, suppose you invested $2,000 to buy 100 shares of a stock at $20 a share. Over the three years that you own it, the price increases to $25 a share and the company pays a total of $120 in dividends. To find your total return, you'd add the $500 increase in value to the $120 in dividends, and to find percent return you divide by $2,000, for a result of 31 percent. That number by itself doesn't give you the whole picture, though. Since you hold investments for different periods of time, the best way to compare their performance is by looking at their annualized percent return. The standard formula for computing annualized return is: AR = (1 + return)(1 / years) - 1 In this example, your annualized return is 9.42 percent.
Helpful Tips:
Whatever type of securities you hold, here are some tips to help you evaluate and monitor investment performance: * Factor in transaction fees. To be sure your calculation is accurate, it's important to include the transaction fees you pay when you buy your investments. If you're calculating return on actual gains or losses after selling the investment, you should also subtract the fees you paid when you sold. * Create a single spreadsheet for your investments. If your investments are spread out among different financial firms, it’s a good idea to create a master spreadsheet that contains each investment and its value at the time you undertake your evaluation. * Consider the role of taxes on performance. Computing after-tax returns is important, including capital gains and losses. This is often helpful to do with the help of a tax professional. Learn more about capital gains. Factor in inflation. With investments you hold for a long time, inflation may play a big role in calculating your return. Inflation means your money loses value over time. A number of calculators compute inflation’s impact on savings and investments. * Compare your returns over several years. This will help you see when different investments had strong returns and when the returns were weaker. Among other things, year-by-year returns can help you see how your various investments behaved in different market environments. * Rebalance as needed. Be prepared to make adjustments when the situation calls for it. In investing parlance, this is referred to as rebalancing .
Volatility
Volatility
Investing
Anyone who follows the stock market knows that some days market indexes and stock prices move up and other days they move down. This is called volatility. The more dramatic the swings, the higher the level of volatility—and potential risk. Volatility can spark different reactions in different types of investors. Buy-and-hold investors—those who invest for the long-term—tend to treat volatility like background noise. The ups and downs of markets and individual securities hum in the backseat, while the long-term investor focuses down the road on incremental growth over years, or even decades. For investors who need short-term liquidity—for example, to purchase a house or a car—volatility can be a liability and source of anxiety. Those who cannot bear the thought of—or cannot afford—locking in losses due to price drops can explore less volatile alternatives that help safeguard funds when they need them. Diversification is one way to manage volatility, and the anxiety that can come with it. On the other hand, day traders and options traders tend to focus intently on volatility that occurs over much shorter periods of time, a few days or even mere seconds. Their goal is to profit from volatility using a variety of strategies. There are also complex exchange-traded products that are linked to volatility. Beta Basics When it comes to individual stocks, a common measure of volatility relative to the broader market is known as the stock's beta. This number compares the movements of an individual security against those of a benchmark index, which is assigned a beta of 1. For example, a stock with a beta value of 1.2 has historically moved 120 percent for every 100 percent move in a benchmark index, such as the S&P 500. In other words, it's more volatile than the broader market index. On the other hand, a stock with a beta of .85 has historically been less volatile than the underlying index. “Growth stocks” generally have a higher beta (are more volatile) than “value stocks”—those of larger, more established companies. Higher beta comes with higher risk but the potential for higher returns. Lower beta, and the reduced risk that comes with it, means reduced potential for short-term return since the stock price is unlikely to increase very much in that time frame. Read more about risks. Manage Risk—and Emotion Volatile markets have become more common in recent years. When markets fall sharply, it’s easy to react on impulse, selling off your stock investments or dramatically changing the allocation of your portfolio. Turbulent markets tend to be a good time to talk to your investment professional. And to consider the broader consequences of any action you are considering. Ask yourself: How does
the action I take in the moment impact my portfolio in the future? What are the tax consequences? How would this action impact my long-term investment goals? When stock market volatility is high, manage your overall financial condition by focusing on the following: Set clear, prioritized goals. This will help guide your investment approach, regardless of market conditions. Stay diversified across, and within, the major asset classes, keeping in mind that all investments fluctuate in price. Take advantage of day-to-day opportunities to build your finances: Pay your credit-card debt on time and in full, keep your eye on other financial objectives such as saving for a home or vacation, and maintain an emergency fund. Be on fraud alert. In times of high market volatility, investors may be especially vulnerable to financial scammers touting guarantees of "risk-free" returns. Reduce your risk of fraud by working only with registered investment professionals