According to data from Oriental Fortune Network, as of November 2021, there are 196 million stock accounts in the country, and these accounts are only a part of the total number of people participating in domestic investment. There are also a large number of people participating in investment activities through banks, online payment platforms, and so on, which is several times the number of people with stock accounts. With so many people participating and the direct involvement of money, countless opportunities and risks coexist. Faced with this situation, how to survive in this field may require some thinking. Blindly following the trend will only be hunted and harvested!
Introduction
For a modern person, to live a long life, one must inevitably participate in economic activities, whether it is buying food or earning rewards through work. For someone who wants to live a good life, investment is an inevitable activity. You can keep your money in banks, payment platforms, or invest in stocks, funds, real estate, futures, and so on. But to participate in these activities, you must first have a certain amount of knowledge and theory, and operate after having a certain understanding of the activities. Otherwise, what awaits us will be disappointment, pain, and even despair.
In this article, I will discuss some basic investment considerations that I think are important.
Basic Investment Knowledge
- Who participates in investment?
Whether we work hard to earn money, keep money in banks or financial institutions, or participate in financial trading markets, we are all participating in investment in different ways. In modern society, everyone is a member of the economic system, so everyone is participating in economic activities and investment activities.
Therefore, it is crucial for each of us to have some basic knowledge and concepts, which can effectively guide us in participating in economic activities, protect our interests, and increase our chances of gaining profits.
- What is the first element of investment?
Since investment is a national affair, what is the most important and concerning element for an investor?
Return on investment.
Simply put, it is the proportion of returns we can generate after investing a certain amount of capital. When it comes to return on investment, we need to pay attention to the following:
The investment return rate must be positive.
In terms of investment return rate, it is crucial to always maintain a positive rate, as it determines our investment income. Some investment institutions may claim to have the highest investment return rate, but they often fail to mention that the lowest return rate could even be negative. Some people might say, "Your investment return rate is 20%, 30%, while mine is -20%, 70%. So, in the end, we both have a 50% return, right?"
Actually, that's not the case. Let's calculate the data from the example above. If each person's investment is 10,000 yuan, the first person's returns would be 12,000 (10,000 + 10,000 * 20%) and 15,600 (12,000 + 12,000 * 30%), while the second person's returns would be 8,000 (10,000 - 20% * 10,000) and 13,600 (8,000 + 70% * 8,000). From this, we can see that the person with a positive investment return rate at the end of two cycles has a higher income.
Therefore, don't be fooled by the "super high return rates" of some people. Consider both the highest and lowest points of data and ensure that they are positive before taking action.
- How to participate in investment?
For most people, even if they want to participate in investment, they don't know where to start. I will explain it in four parts: what to buy, how much to buy, when to buy, and the most effective investment method.
- What to buy?
First of all, if you want to participate in market investment, you need to determine what products are suitable for you. "Suitable" means choosing within your applicable range.
Based on applicability, analyze various aspects such as the risk of the product, our requirements for fund liquidity, and fund security. Consider various information based on your own situation and find the intersection of various needs.
- How much to buy?
There is an old saying in the market, "Don't put all your eggs in one basket." Our investment behavior is to seek maximum returns while preserving our capital. Therefore, we can purchase multiple assets, but we should also be careful not to spread our funds too thin, as it may lead to insufficient returns.
We can start with cash as a foundation because of its strong liquidity, which can support our daily needs. ETF products can effectively diversify risks. Based on this, we can purchase some high-value assets to ensure the stability of our income structure.
- When to buy?
Different products have different lifecycles, and the market environment also has its own lifecycle. Therefore, we can choose different products to buy and sell based on the market cycle, thereby achieving returns during the ups and downs of the cycle.
Based on the economic cycle, we can know that when the economy is in a stagnant period, the government and companies will issue a large number of bonds to stimulate market vitality. This is a good time to buy bonds. When the market is in an upward phase, it is favorable for companies, and we can hold stocks to obtain effective returns. When the market is in a high-growth phase and requires a large amount of resources for production and construction, we can profit from trading commodities. When the market is in a downward phase, holding high-quality assets and cash is a more secure choice.
The above are relatively effective investment methods based on different stages of the market lifecycle. However, for most people, it is impossible to clearly see the market. If we enter the market blindly, we will only face failure and loss. So, how should the majority of people invest?
- What is the most effective investment method?
As mentioned above, the majority of people do not have the ability to predict market changes. So, how can we invest?
Index funds.
We can learn and choose excellent funds, and buy and hold index funds for the long term to achieve considerable returns.
Investment First Principle
Investors have their own principles for living, which I call the first principle of investment. It means that this principle must be followed and cannot be violated. In my opinion, the first principle of investment can be summarized in one sentence:
"We can only earn money within our own understanding."
This sentence has two meanings:
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Don't touch things you don't understand, or the consequences will be disastrous. Understanding doesn't mean being an expert, but at least having a basic understanding and knowledge within a certain range. Then, gradually try with less risk and continuously enrich your knowledge and understanding of the market through experimentation.
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To earn more, we need to expand our cognitive boundaries. Expanding cognitive boundaries is comprehensive. It not only requires a comprehensive understanding of the basic knowledge of the fields involved in expanding boundaries but also requires continuous accumulation of our own energy in depth.
Reconsidering Investment
The above discussion on investment mainly focuses on economic investment, but these considerations are not only useful in the economic field but also in other areas. We can consider the above methods and thoughts as a set of tools. By following this line of thinking, we can analyze and think about everything in life. I believe it will be beneficial for our employment, work, career growth, and even family relationships.
As we enter the third year of the pandemic, perhaps we need to take some time to reflect on our familiar lives. I believe there are many things that we have overlooked or forgotten.
Reading List:
Books:
- "Detailed Talk - Zhang Yong" by Li Xiang
- "Using Yourself as a Method" by Xiang Biao
- "Product Journey: Methodology and Practical Advancement for Product Managers"
- "China in the Eyes of Flying Tigers: 1944-1945"
- "Think Well" by Cheng Jia
- "Winning at Work" by Koji Takashiro
- "15 Lectures on Logic" by Chen Bo
Courses:
- "2021 Chaos Academy Mid-Year Course"
- "Chaos Academy - The Ultimate Truth of All Things"
- "Chaos Academy - Herd Effect"
- "Zhu Jiawei - Mastering Blockchain in 30 Lessons"
Movies:
- "Thirteen Invitations - Liu Qing"
- Nikita Mikhalkov's "Relatives"
- "Under the Sun"
- "War and Peace - 1966 Soviet Version, 4 episodes"
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