Diversify, split management, instruments, high-low, on-the-dollar, liquidity, assets blah blah blah. Why does all this mean and why should you even care? Well, it doesn’t matter much to most people because they want to live in a world where they don’t put their money where their mouth is and get into investing. That is noble of course because this means they don’t put their hard-earned money at risk, because they aren’t taking any. Of course not, it makes sense to not play with fire especially if you don’t know how hot the flames are. However, there is a way to positively limit your risk to the most minute level in any and all investing. Diversification means you have all your fingers, in different pies. There are strategies of diversification and then there are actual instruments i.e. entities, plans, tools and vehicles that are by their very existence and motive diversified. Still not getting it? Don’t let any of this put your off as you can make money by investing in this way.
A stock with stocks
An ETF is one of the broadest investing instruments in the world. ETF, stands for exchange-traded-fund. Basically a company will create a portfolio of different stocks, usually numbering up to 100. These could be in a specific industry, such as the automotive industry or food and beverage. Equally, there can be mix of stocks such as, some from the marketing industry, smartphones, shipbuilding, military technology, events, music etc. They will then offer parts of this portfolio (ETF) to the market or to private investors that have come to them. The aim is, that with such a diverse range of stocks in the portfolio, even if one of them tanks and loses a lot of worth, the investor won’t lose as much money, if at all, because another stock may balance it by increasing in value. This way, it means investors will almost always stand to make a profit. But, it’s slow and steady which is the cost of doing business with a remarkably diversified instrument. Anyone can invest this way, you don’t have to be stinking rich at all.
Betting on change
Another variation or rather little sister of the ETF is the CFD. The Contracts For Difference is an instrument whereby you are investing in the price movements of all manner of financial assets. This includes commodities, forex, indices, and even now in cryptocurrencies. Essentially, you’re betting that a group of such assets will go down or up in value. Since, everything and anything in this world changes, the markets are always going to fluctuate. That much is a certainty, which means that if you do some research you can predict whether or not certain foods or even fuels will begin to garner more interest or less. CMC Markets is one of those that provide a CFD for anyone to invest in. They have different products numbering into the hundreds for all asset classes. Be sure to check out the margin rates and the minimum spreads before you decide on how much to invest with.
For first-time investors, the fear is that because of your inexperience you will lose all your money you put up for risk. However, this is no way near an accurate representation of what is out there to invest in. Diversified instruments such as a CFD or ETF are specifically designed to manage fluctuations and limit damage.