Tag Archives: bonds

How to invest: 5 basic tips for beginner investors in stocks

Investments for beginners

The development of technology has increasingly paved the way for ordinary people to global financial markets. But easy access for individual investors to international markets comes with the need to be educated about them and to understand the risks they take.

1. Do your homework

Once you have decided on which platform you want to invest, you have to do your homework. Investing means more than choosing a few random shares, with the hope that everything will go well on its own. A familiar example would be that when you buy a house you do not choose one at random from advertisements, but you will go to visit it. And to determine if it has a fair price, you look at the neighborhood, the real estate market in general and then you make a decision.

Similarly, before you start investing in stocks or any other asset class, you need to research the market to understand what you are investing in. Read about each asset and invest only when you feel comfortable that you can make a well-informed decision.

Thanks to the internet, nowadays it is easy to access information about listed companies. You can see what their income and history are, you can read their news and recommendations for investors. Sector or market information or even political news is also important – for example, we can now see how airlines, even the best performing ones, are affected by Covid-19 travel restrictions or how incentive packages economically affects markets. Being up to date with things that happen in the media helps you better understand the evolutions of stocks and trends in the markets.

2. Define your financial goals

Before you invest your money, you need to have a clear idea of what you want to achieve and how you will do it. You need to understand your personal goals as an investor. Do you plan to invest in the long term (10 years for example) or in the short term? What types of investments will help you achieve your goals? What are you ready to risk?

Investors should be encouraged to define an investment strategy that suits their needs, including their risk attitude. To mitigate risk, they should diversify their portfolio, adopt a long-term attitude and invest only in financial instruments with which they are familiar and for which they understand the risks they take.

3. Invest the money you don’t need in the next five years

Risk appetite should always be linked to investment objectives. Evaluate your current financial situation to understand if you can take the risk and always invest with money you will not need in the next five years. Never invest more than you can afford to lose!
You need to have a long enough time horizon for the investments you make to avoid market fluctuations. If you have an amount at your disposal, but you know that you will need this capital in the next 12 months, then the recommendation is to invest in a less volatile asset class, such as bonds.

Over time, stock markets have provided excellent returns to long-term investors. For example, since the establishment of the S&P 500 index (stock index composed of the top 500 American companies) in 1926, it has increased by an average of 10% annually. This is a much higher return than those generated by other assets, such as government bonds. You can also start investing in shares with a relatively small amount of money using a commission-free platform, as commissions can affect your profit margins.

One of the factors that discourages people from investing online is cost. The idea is still widespread that you need a lot of money to start investing. Moreover, equity investments are often perceived as an extremely complex process, involving technical knowledge and attracting expensive commissions. This is no longer the case. A number of online investment platforms, conduct transactions with shares without commissions, as well as fractional shares – you can actually buy a part of a share, a percentage of it, expressed in dollars. This offers the opportunity to invest $ 50 in high-value stocks, such as those of Amazon (which trades at about $ 3,000 per share), Tesla (over $ 700) or Alphabet (Google) – whose shares would cost about $ 2,000 a piece.

4. Practice before you start investing

Start with small amounts of money or practice with a virtual demo account, while learning the markets and defining your strategy.
Demo accounts of several online platforms allow you to practice without risk. Every user who registers receives access to a demo account, credited with virtual money, so that they can practice their strategies, learning to work with the platform before investing with real money.

5. Diversify your portfolio

Diversification is a risk management strategy and the proverb “don’t put all your eggs in one basket” explains the concept very well. In other words, invest in different assets or market shares to limit your exposure to a certain class of assets or financial instruments.
The purpose of diversification is not to achieve very high returns, but to manage risks. Think about what it would have been like if you had invested all your savings in the shares of an airline company just before the pandemic, which made travel difficult. You don’t want to be completely dependent on the performance of a single company or a single sector, maybe even the economy of a single country or continent.

Is peer-to-peer lending safe for income investors?

Anyone who has borrowed to buy a car or a taken out a home mortgage is familiar with the basics of how a loan works.

In a nutshell, borrowers ask for money, and lenders decide how likely it is that they will see that money back. If repayment is unlikely, those lenders charge a high rate of interest to offset that risk, and if the borrower is trustworthy they charge a lower rate of interest to win the business from competing banks.

But loans aren’t just ways to buy things. They can also be powerful ways to invest for income.

For instance, bonds are essentially a debt that’s owed by a corporation or a government to investors. A 10-year U.S. Treasury bond is a 10-year loan to Uncle Sam, and at current rates the government will pay you about 2.3 percent annually in interest – along with repaying your initial loan in full at the end of a decade.

That’s not just a nice way to grow your money, but a safe one, too.

In a digital age, debt markets have become more accessible for both investors and borrowers alike. Consumers can easily compare dozens of loans on the internet, investors can research and purchase a wide variety of bonds with a click of their mouse and more competition drives down the costs of a loan for well-qualified borrowers.

Another interesting development in debt markets has been the rise of peer-to-peer lending.

Peer-to-peer lending went mainstream about 10 years ago, with the launch of Prosper and Lending Club as two of the first large U.S. portals for so-called P2P loans. The idea was simple: an individual borrower makes their case for why you should give them money, and regular consumers can decide if it’s worth putting up the money.

It may sound like a scam to the skeptical or to the risk-averse. But remarkably, it worked in many cases – and continues to work today.

A common example is someone who has $5,000 in credit card debt with a 20 percent annual interest rate, who is asking the P2P community to lend them $5,000 at 8 percent or 10 percent. Everyone wins in that scenario, with the borrower paying less to their credit card company and the internet lender getting a nice return on their investment.

The downside, of course, is that investors who purchase debt via bonds from brick-and-mortar corporations have a much easier time of knowing what they’re getting in to. On a peer-to-peer lending site, doing your due diligence is much harder.

So how do you know if peer-to-peer lending is right for you?

Well, for starters you need to assess your risk profile. The potential for 8 percent or 15 percent annual returns is nice, but there is a very real case your money is just walking out the door. So never consider P2P lending if you can’t afford to lose a big chunk of that principal.

If peer-to-peer lending is still an option you’re interested in, then find a major peer-to-peer lender that is transparent about its process and track record. That doesn’t make your investment in P2P loans via these sites a sure thing by any stretch, but can help mitigate some of the risks of default.

Lastly, always consider the importance of diversification. If you want to invest in peer-to-peer lending then make sure it’s only a limited part of your portfolio. And rather than dish out $10,000 in loans to one person on a P2P portal, consider 100 smaller loans of $100 a piece so you don’t get hit as hard in the event of default.


Eurocent continues servicing loans on Mintos peer-to-peer lending marketplace

Mintos logo

Here is an update on the situation with Eurocent-issued loans. After missing repayment of its corporate bonds on June 8, 2017, Eurocent has continued servicing the loans and passing on all borrower payments to investors on the Mintos marketplace. Since June 8, 2017, the outstanding investment portfolio in Eurocent loans on the Mintos marketplace has decreased by 21%.

Eurocent continues to negotiate with potential investors to resolve its financial situation. However, given the still-uncertain results of these negotiations, Eurocent has submitted an application to the court to restructure the company’s debts. This is a formal procedure that prevents creditors from commencing enforcement proceedings of the unpaid corporate bonds. The decision of the court is expected by September 2017.

If the court does not allow restructuring of the debt, Eurocent will enter bankruptcy procedure. To prepare for this scenario, Mintos has made an agreement with a third party that will take over servicing Eurocent-issued loans assigned to investors on the Mintos marketplace.

Given its financial situation, Eurocent has suspended the automatic buyback of loans that are late by more than 60 days. When automatic buyback was suspended through the technical side of the platform, the shield icon visually indicating the buyback guarantee was temporarily lost as a result. However, Eurocent still remains liable for the guarantee, as indicated in the respective loan assignment agreements, and the shield icon will re-appear for Eurocent loans after the next platform update.

Eurocent-issued loans that are delinquent continue to be serviced according to standard processing, and all repayments made on the loans by borrowers are paid back to investors on the Mintos marketplace. The company plans to fulfill its buyback liability as soon as its financial situation has improved.

If the company’s financial situation is not resolved and Eurocent enters bankruptcy procedure, investors with outstanding investment in delinquent loans that are not bought back will have a creditor claim against Eurocent.

Mintos has temporarly suspended the placement of new Eurocent loans

Mintos logo

Update: latest information about Eurocent loans on Mintos marketplace can be found here.

Placement of new Eurocent loans on the Mintos marketplace has been temporarily suspended. The decision was made by Mintos management following the information that Eurocent has missed the repayment of its corporate bonds.

Eurocent bonds worth PLN 1.8 million (EUR 425 000) were due on June 8, 2017. According to the company’s information, the failure to make the repayment was caused by a delay in the negotiation process to attract new financing.

Following the missed bond repayment, the management of Mintos marketplace made a decision to stop the placement of new Eurocent loans on the primary market, as well as reverse all investments where payments were still in transit to the loan originator. In addition, starting from June 26, operations with Eurocent loans have been suspended on the secondary market, as well. These limitations will hold until bond repayment is resolved.

The management of the Mintos marketplace is in close contact with the management of Eurocent. During a joint meeting, Eurocent’s management outlined a specific course of action to aid the bond repayment – first, by seeking to prolong the bonds, and second, by finishing the negotiations with the investor or turning to alternative sources of financing.

Eurocent continues to service the loans and collect borrower payments that are transferred to the Mintos marketplace for distribution among investors.


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