Investment Knowledge

Statistics show that over 90% of wealthy and financially independent have multiple sources of income and that most people experiencing poverty only one source of income. Therefore, diversifying income streams while maintaining a main job can help you achieve financial success.  

One of the reasons for why the rich continues to get richer, the poor become poorer, and the middle-class encounter debt is in their different money earning streams.  

If you let your money idle in a savings account, the returns on your savings will not be significant.  On the contrary, the wealthy create different passive sources of income by intentionally investing in the financial market and they often start investing very early.

 

 

 

Investing can be a path to creating passive income. You can start to invest monthly using the idle cash in your current savings account.  Normally almost investment channels such as stocks, bonds, or real estate, etc…can make profit. Your investment every month into these channels can bring about surplus value in the middle and long terms. Your investment can grow exponentially.

 

You should start saving for retirement when you are still working. You can invest your pension savings into stocks, bonds, open-ended funds, real estate or by capital contributions to a business. After retiring, you will be surprised at how much you have earned from such investments and enjoy a relaxing and comfortable retirement.

However, it is necessary to be aware that investments come with inherent risks. When you are young, you only have a small amount of idle money for investing and loss can happen at any time. But you will soon accumulate experience of long-term fund management. If you start investing at 35 or 40 years old, after 10 years of working and saving quite a bit of money, you will be able to invest 10 times more than when you first started working, but with higher risk since you have less investment experience. 

 

Investing helps you reach your big financial goal. If your investment brings about higher returns than interest rate, you can earn more in both the short and long terms. Return on investments can help you achieve big financial targets such as buying an apartment, buying a car, starting your own business, or sending your children to study overseas, etc.

 

A person who has reach true independence has achieved 3 things:

Financial independence is not about how much money you have to live comfortably but how long your money can help you live comfortably for.  Supposedly, you have 200 million Vietnam Dong (VND) in your bank account with decent monthly salary of VND 12 million. If you get sick and must stay at home for 2 weeks, you are paid for the remaining 2 weeks of the month only. Or in case you want to study overseas, which costs VND 200 million and you need to quit your job, you will have no source of income. What happens if you remain at your job and invest half of your savings? The expected investment rate of returns on investment capital of VND 100 million is 15-20% per year, that is equivalent to VND 15-20 million per year. Surely you can enjoy a comfortable life as the money grows even when you are sleeping.

If you are not a business owner, then you are an employee selling your time for a salary each month. Even when you are promoted to a high position, it means you must sell more of your time and effort to get better paid.  Investment in the financial market will create another passive source of income to afford your monthly living, while you save time for your children and family.

Investment in financial markets brings you to places other than your current location.  Besides having passive income every month and releasing yourself from the office space, you can enjoy travelling to different places without worrying about an interruption of earnings.

 

Investing is one way to defend against inflation. Affected by outward factors like currency wars or global economic crisis, the inflation rate in Vietnam is difficult to maintain at a safe level. When you make a bank deposit, the annual interest rate is roughly around 8% while the inflation rate may be higher than 10%. In this case, investing can keep your money growing and prevents  the risk of currency devaluation compared to saving in banks.

 

Being dependent on only one source of income means you are restricted in many ways. You can increase your income and remain in good financial condition by investing in a suitable channel or market. When joining the financial market, you will be provided with more knowledge, experience, and confidence as your passive income increases every month.  

 

Everyone has someone they love and want to care for. For some people, that might be the parents who raised you and are closest to you. They deserve to have a comfortable life with sufficient care when they get old. Some successful investors use a portion of their profit to support people in difficult times or share with them their secret to success. This in turn makes them feel happier and more fulfilled. 

 

Despite being aware of investment risks, many people do not want to miss out on the chance to get what they desire through investing.  For example, when the real estate market is stagnant, investors will find other potential and more challenging markets to participate in. For professional investors, a sense of adventure is ingrained in their blood, as from their point of view, a risky market with high returns is worth a try.

 

Diversification is a method in which an investor diverts their funds into a portfolio of different types of investments. This facilitates risk minimization in the scenario when an investment sector goes down while the another develops. This method is immortalized in a well-known proverb “Do not put all eggs into one basket”. Why we need to put our “eggs” into different “baskets” and how to do this safely and with high returns will be answered below.

 

If your eggs are put in one basket and the basket falls to the ground, all you have left are broken eggs. Diversification is a kind of insurance in case your investment basket falls. For example, if you invest in the stocks of one company only and the company does not operate properly and thus encounters loss, the stock price will drop sharply, and you will lose most of your money.

Diversification helps minimize investment risk. If you invest in various instruments like open-ended fund, stock, bond, bank deposit or real estate…, you can still receive good profit when one investment instrument has bad result and others still generate a good income at the same time. 

Diversifying your investment not only minimizes risk but can also create opportunities for more sources of earnings.

 

There are many ways to perform investment diversification. Before deciding capital allocation, you need to study what financial instrument is suitable for your financial condition and bring potential income. 

Diversifying within one asset class: For example, you can buy bonds which vary from government bonds, corporate bonds to treasury bonds with different terms.

Diversifying into various asset classes: You can invest in several asset classes like open-ended fund, stock, bonds, cash, or commodity etc.

Diversifying into different industries: Capital can be distributed to stocks or bonds of different companies in different industries to reduce risk.

 

Not everyone has a strong enough financial ability to invest in several stocks, bonds, and other assets at the same time. Moreover, ordinary investors do not have sufficient time and in-depth finance knowledge to analyze and keep track of the market. Therefore, open-ended fund is the best choice for them. Investing in an open-ended fund is an indirect investment method. Instead of investing by yourself directly, you put money in the fund. Experienced investment experts of the fund manager will allocate money into stocks and bonds. Normally if you invest in a company, what you own is stock. When you invest in an open-ended fund, you will own fund certificates. If the fund performs well, the fund’s net asset value will grow. That means the fund certificate price increases and helps you increase profits.