Hi there! Welcome to your Life Portfolio. What would you like to put in it? Are you risk loving or risk averse? Would you like a mixed portfolio of diversified returns, or are you going for a more dynamic growth strategy? It’s OK – you’ll probably be changing your risk profile over time. You’ll probably look for a more mature form of return later in life. Alternatively, you may find that your circumstances have changed, and you’ll need to build a new portfolio from scratch. Been there, my friend. It’s different for everyone, but make sure you know what you’re looking for. It’s your choice ultimately, so pick wisely. And as always – read the small print. In the meantime, here’s a short guide* to get you started.
FIXED INCOME
Ah, fixed income. Safety in returns. The equivalent of a cup of English Breakfast Tea. Nothing exciting here.You’re just looking for some form of consistent. rather bland return on investment, where you know exactly what you’ll get with your standard investment, and it’s all rather comfortable, if not a little dull. It’s simple really, you put in X amount, you get back Y amount on a regular basis. Everyone needs some fixed income in their lives – just make sure you don’t overdo it, because we all get bloody bored of drinking tea everyday and you don’t want to turn into your granny just yet, right?
EQUITIES
Equities are where it gets interesting. They can, by nature, be a high risk and high return form of investment. Like some fancy South American cup of expresso extracted from a series of siphons and flasks. It’s all very exciting and intriguing, although you’re not sure why. It either means you see some real potential there, or you’re just pretty naive and stupid. And let’s face it, more times than not, it’s naivety and stupidity that rule the day, but hey that’s how the cookie crumbles.
You will of course get the regular dividend payoffs and on occasion they’ll be much more fantastical than other occasions, but you didn’t stump up that sort of investment upfront to reap some pithy dividend. No, you’re looking for overall growth in the product – you want to add significant value to your portfolio. It might mean you have to work that little bit harder on it, but it’s because you’re willing enough to take the risk. Some days you’ll invest at some ridiculous price and see the stock underperform. Actually, most days it’ll do that. But because of your stubborn pigheaded nature unshakable faith in humanity, you’ll doggedly reinvest because in the end, you feel it’ll be worth it.
CONVERTIBLE BONDS
This is a rather rare form of security to find. These investments are those which seemingly start out as your regular, run of the mill form of return (i.e. bonds) but it turns out that the underlying stock is rather quite awesome and you’d elect to take the additional risk to convert it into Equity, even though there’s a risk you’ll live to regret it. The difference with these securities (at least in my interpretation) is that you’ll never know what bonds are convertible until you invest in them in the first place, and actually they’re reconvertible if you choose to go that way. You’d hope you wouldn’t need to, because obviously you’d feel like a total numpty but sometimes you will find it’s just no longer performing for you. Convertible bonds are the equivalent of buying your regular cup of Joe at your regular coffee haunt, only to one day stumble upon and whimsically purchase a cup of their fancy ass coffee, subsequently choosing to upgrade forever more. Until you realise it isn’t worth the extra coinage and you might just downgrade – if only now and then. One can’t always be f*cked with making that extra effort, especially on a bad day.
JUNK BONDS
Can’t get rid of them, and they are literally dead weight to you. For some reason, they came as part of the package with your other investments. Sort of like a freebie that you never really wanted. These are the hideously disgusting sachets of new insta-coffee that came free with your regular purchase and you don’t have the heart to throw it out. They’re harmless, if not of very little value to you.
FUNDS
All funds claim to be the best thing since sliced bread. They are a ready made investment structure, just waiting for willing bypassers to open their hearts and wallets to them. They can take many different forms, and provide various forms of return to you (in exchange for a fee of some sort of course). Once you’ve invested, you’ll find the manifestation of what they’ve promised you. Depending on the nature of the fund you’ve chosen, there will be a range of diverse securities, some of which will really pay off for you, some of which will be complete shit which you’ll just need to live with and do your best to ignore. The main benefit of a fund is that it’s convenient and readily available, the main drawback is that they’re tricky to terminate at your discretion so you’ll probably end up paying for that sort of access for a locked-in term even if you’ve decided to shun all it has to offer. A fund is effectively a Tea Collection where there’s probably some really good stuff in there, buffered with a ton of crap and in the end you’ll have to be the judge of whether it’s a worthwhile buy. You could always just invest in those stocks outright afterwards anyway..
DERIVATIVES (GENERAL)
Derivative contracts are key drivers to expand your portfolio. Any security can play their part in a derivative contract. They could be complete duds, like seriously low return bonds, but you only need it to perform the appropriate function which could mean exploiting it for all their worth. Derivatives are a binding force between two parties, of which the relationship hinges on the underlying, or the common denominating force. How the underlying performs will drive the dynamics between the two parties and at least initially, the value of that relationship. You need derivative contracts to seek out new opportunities for investment.
CALL OPTION
(For the purposes of this guide, we are segregating Derivatives with Call Options. Why? Because my contrived analogies don’t work very well and get muddled otherwise, OK?) Cautiously, but with intrigue, you put down your premium and observe how the stock performs. Within a limited period of time, if the stock exceeds your ‘strike price’, then your option comes into effect. You can Call and make the investment because hey, it sort of exceeded your expectation and it’s worth a punt. Or, if it disappoints you and doesn’t meet the strike, just let it go, it was only a tiny investment you made in the first place anyway. The beverage equivalent of purchasing a fancy new coffee blend on special offer that might – just might – turn out to be worth your time.
* You invest at your own risk. All securities are susceptible to wildly underperform and utterly dismay you. On the other hand, you may find joy in abundance in your portfolio. The important thing is to be comfortable with the choices you make, and always be self sufficient enough to bear losses. Investments should only supplement your income. They should not be relied upon to sustain you entirely, and you should always rely on your own independent means for that purpose.
DERIVATIVES (GENERAL)
Derivative contracts are key drivers to expand your portfolio. Any security can play their part in a derivative contract. They could be complete duds, like seriously low return bonds, but you only need it to perform the appropriate function which could mean exploiting it for all their worth. Derivatives are a binding force between two parties, of which the relationship hinges on the underlying, or the common denominating force. How the underlying performs will drive the dynamics between the two parties and at least initially, the value of that relationship. You need derivative contracts to seek out new opportunities for investment.
CALL OPTION
(For the purposes of this guide, we are segregating Derivatives with Call Options. Why? Because my contrived analogies don’t work very well and get muddled otherwise, OK?) Cautiously, but with intrigue, you put down your premium and observe how the stock performs. Within a limited period of time, if the stock exceeds your ‘strike price’, then your option comes into effect. You can Call and make the investment because hey, it sort of exceeded your expectation and it’s worth a punt. Or, if it disappoints you and doesn’t meet the strike, just let it go, it was only a tiny investment you made in the first place anyway. The beverage equivalent of purchasing a fancy new coffee blend on special offer that might – just might – turn out to be worth your time.
* You invest at your own risk. All securities are susceptible to wildly underperform and utterly dismay you. On the other hand, you may find joy in abundance in your portfolio. The important thing is to be comfortable with the choices you make, and always be self sufficient enough to bear losses. Investments should only supplement your income. They should not be relied upon to sustain you entirely, and you should always rely on your own independent means for that purpose.
KJK 