A lot of investors might have wondered how high could the Hang Seng Index go in the weeks following the announcement that China’s central bank had cut the key interest rate by a quarter of a point. It broke through the 3,000 level, which is an unprecedented level for the Hang Seng. Perhaps not surprising then, the Hang Seng Index continued to tumble for some time.
But now that the equity market has rebounded somewhat the Hang Seng Index has begun to rise again, although it is still way below its all-time highs. Is there anything that investors can learn from the recent market action?
When it comes to investing in the stock market the analysts and the financial news media do not always offer much guidance. So, how should one go about creating an investment portfolio that will work for their individual circumstances?
For instance, if you’re not a big holder of cash and bonds, then you’ll need to be able to diversify your holdings. There are a few good ways to invest, but a few good investments that will work for most people include stocks, real estate, and gold.
Gold is one of the only precious metals that actually increase in value, unlike other commodities such as oil or energy. It can also be used to purchase precious metal assets, such as jewelry, without causing the price to increase in value.
An even better idea is to invest in the stocks of large companies, as they’ll usually carry a lower risk for investors than the smaller companies. There are a few reasons for this. First, a company with a lower risk will often sell stock at a discount, so it has the cash to use for dividends on other assets.
Also, they may have already established a hedge to counter adverse conditions. Therefore, these stocks are easy to buy and sell, and since there are so many available, it’s easy to get great returns on a small initial investment.
While it’s true that gold has historically been one of the most profitable asset class when it comes to developing countries, it’s important to note that it doesn’t work as well for the U.S. and other developed nations. It would take an incredible amount of resource to create gold, so it can’t really be mined, only manufactured, so to speak.
In fact, it’s also a good asset class for speculative investors as it’s the one commodity that never loses its value. If the price rises, you can sell and have the money soon after, and if the price drops you can still make money if you get rid of it now rather than later.
Developing nations will not appreciate this commodity as well as developing nations, but if you understand the dynamics of the stock market, you can see how it will affect investors. Although emerging markets may have a higher price to earnings ratio, developing nations are heavily invested in manufacturing and trading commodities.
Even though it doesn’t matter where you live, when it comes to investing in the stock market there are many things to keep in mind. And as always, knowing what to expect is half the battle.
In summary, knowledge is the key to financial market behavior, and knowing when to diversify, how to set up and manage a portfolio, and knowing what to expect from stock market behavior is the best way to ensure success. So, next time you’re wondering where to invest, think of your assets, your tolerance for risk, and know the proper investment portfolio.