First off, the author of the book focuses on investing for beginners. This may sound like common sense, but many people are overwhelmed with all of the various options out there. By focusing your attention on a specific strategy, you can get more bang for your buck.
One of the most important aspects of this approach is that it takes a step back and looks at your entire financial picture. It makes no judgment as to whether or not you should invest. Instead, it takes a look at the possible risks that you are taking and then breaks them down into categories.
The categories are: Fund Risk: Most of the time, you’re looking at high-risk investments, such as bonds, stocks, real estate and gold. This is because these are investments where the long-term return on your money will be low. For example, if the price of oil doubles overnight, you won’t want to put all of your money in the stock market.
On the other hand, a long-term return on bonds is fairly high and can be quite lucrative. There are some riskier options, but the author does outline these. For example, it’s likely that a risky investment will gain in value over time.
Other categories include: Risk on Demand: Some investments are risky on demand. If there is a particular country, like Mexico, going through a political turmoil, then that country will almost always benefit from the political uncertainty. However, you may not have much to lose by holding onto that stock. You can typically count on it to be stable and to appreciate in value over time.
As an investment category, this one is similar to the risk on demand one. It’s important to look at the potential value of that particular investment. Since you are looking at investment opportunities in areas that are not stable, you’ll need to look at the potential for that a certain investment might hold.
You can use this approach to determine whether or not you should invest in a particular investment. or strategy.
Risk on Price: This category is similar to the risk on demand category, but it focuses on identifying which businesses are undervalued. You can evaluate companies based on how much you would pay to buy it now, how big a market share it has and how much it is worth. When comparing companies to each other, the author makes sure that they are both considered, so that you can make a more accurate comparison.
This category of investment is most commonly used for real estate investments. It makes the case for buying up homes to take advantage of the appreciation that they have had.
This category is about looking at areas that are risky in relation to other areas that are not risky. One example of this is oil. Many people may think that oil is a risky investment. However, there are certain areas of the world where the price of oil is relatively constant, and they may find that you can make money when you invest in this particular commodity.
Another example of this category is currency trading, which is also referred to as spot investing. By buying a small amount of currency and selling it for a larger amount later, you can gain a significant profit on a short term basis.
Investing in any area of the market can be hard work. When you are working with a financial planner, it is critical to look at areas that are considered risky. As an investor, you have to be able to evaluate risk on your own and decide whether or not you should invest.