Hello learners. I am Fenrir. Welcome to the garden of wealth. Today we move from the safety of saving to the growth of investing. First we must understand the difference between saving and investing. Saving is setting money aside in a safe place like a bank account. It is generally secure and very liquid. Liquidity means how easily you can get your cash back. Savings are highly liquid. Investing is different. Investing is using your money to buy assets that you hope will grow in value over time. However investing carries risks. Knows that the value of an investment may increase or decrease. You could get back less than you put in. Some forms of investment are more liquid than others. Shares in a big European company are liquid but a house is not liquid because it takes time to sell. When you invest you usually buy one of two things. Debt or Equity. Debt is when you lend money to a government or a company. This is called a bond. They promise to pay you back with interest. Equity is when you buy a piece of a company. This is called a share or a stock. If the company does well your share gains value. If the company does poorly you lose value. Understand basic investing concepts such as investment horizon which is how long you plan to hold the asset and investment objectives which is what you want to achieve. Confident to consider whether specific goals can be met by investing. For example investing is good for long term goals like retirement but bad for short term goals like a holiday next month. Also be willing to provide relevant personal information to the intermediary for a suitability assessment. Under EU law known as MiFID your broker needs to know your situation to give you the right product. Answer honestly.That movement in price brings us to the most important concept in finance. The relationship between risk and reward. Understands the relationship between risk and potential reward which means that if there is a high chance of making money on an investment there is also likely to be a high chance of losing money. There is no such thing as high return with low risk. If someone promises you that it is a scam. To manage this risk we use a strategy called Diversification. This means not putting all your eggs in one basket. Instead of buying one stock you buy a mix. You buy some shares some bonds maybe some real estate or commodities like gold. Aware that the value of investments in material goods such as gold may increase or decrease as a result of a range of factors. This mix is called your Asset Allocation. In Europe we often use collective investment schemes often called UCITS funds to achieve this easily. Knows why it is important to consider overall asset allocation when investing. If the stock market goes down maybe your bonds go up. By spreading your money across different types of investments you lower your overall risk. You should create a diversified portfolio that matches your specific goals and your risk tolerance. Risk tolerance is how much loss you can handle without panicking. Able to incorporate personal preferences with respect to investment goal risk tolerance time horizon and sustainability when making an investment decision. Aware that various brokers and trading tools exist that can be accessed through different traditional and digital means. Use them to combine various investment products such as pensions life insurance policies and collective investment schemes.While you cannot control the market you can control your costs. Fees are the silent killers of investment growth. Knows that different types of fees and charges one time and ongoing direct and indirect can have a substantial impact on the performance of an investment. Every investment product has costs. There are transaction fees when you buy or sell. There are ongoing management fees if you own a fund. There might be platform fees for the app you use. Even a small fee of one or two percent can have a massive impact on your performance over twenty years because that is money that is not compounding. Knows that fees commissions and other charges may be made for investment products and services and that these items may vary depending on the provider and the sales channel. In the European Union you have a powerful tool called the Key Information Document or KID. Always read the fine print in the KID before you invest. It shows you the total costs and the effect they have on your return. You must also understand how changes in inflation interest rates and exchange rates may impact on longer term plans. If your investment grows by four percent but inflation in the Eurozone is three percent your real gain is only one percent. Another key concept is the difference between potential or unrealized and realized losses or gains. If you buy a stock for ten Euros and it drops to eight Euros you have an unrealized loss. You have not actually lost the money yet. You only lose it if you sell at that moment. If you wait the price might go back up. Understanding this helps you stay calm when the market dips. Monitors investments periodically and makes adjustments as necessary but do not panic over daily changes.Staying calm is very difficult because we are human. Factors influencing investment decisions include our own psychology. Aware that human characteristics such as emotions or cognitive biases can impact on investing decisions in unanticipated ways. One of the biggest dangers is FOMO or the Fear Of Missing Out. You see everyone on social media talking about a hot new crypto currency or a meme stock and you feel pressure to buy it. This is social trading and it is very risky. Aware of the risks related to social trading. Do not let your investment behavior be guided by fear of missing out. Confident and motivated to not to let ones own investment behavior be guided by fear. Be confident to question investment offers that appear too good to be true. Instead rely on research. Can retrieve relevant and reliable information to inform investment decisions. Researches potential investments before committing. Confident and motivated to undertake research on potential investments. Use reliable digital tools to compare funds. Look at their past performance but remember past performance does not guarantee future results. You should also incorporate your personal values. Knows that different investment products may have different sustainability characteristics regarding environmental social and corporate governance. The EU has developed a Taxonomy to help you identify what is truly green. You can choose to invest in companies that align with the EU Green Deal. Confident and motivated to compare the level of sustainability of investment products using for example other standards labels or ratings. Investing is not just about making money it is about shaping the future. Confident not to invest if one does not understand the financial product or service. If the KID is too complex walk away.That is a great perspective Aoede. Investing requires research and patience. Can calculate the proportionate increase or decrease of the value of an investment to see how you are really doing.Exactly. And keep an eye on your investments. Takes steps to make informed decisions control emotional responses and takes into account cognitive biases.Understand the risks. Diversify your portfolio. And trust the math not the hype.Be patient. Be diversified. And be wise. You are building a secure future. See you next time!
