Hello there! Welcome to the world of Pokemon Investing! My name is Oak! People call me the Investment Prof! This world has many instruments for investing! For some people, they invest to build passive cash flow. Others invest for capital gain. Myself… I study investments as a profession, and I’m here to provide you with a beginner’s guide to investing!
How investments accumulate wealth
There are generally 2 ways you can profit from investments – Capital gain and Dividends.
Capital gain refers to the “Buy Low, Sell High” concept. Dividends refers to cash distributions to shareholders as and when announced. Here’s Meowth to illustrate this.
Let’s say you recently caught a Meowth. As you train Meowth, it grows in levels and becomes of higher level. Also, from time to time, Meowth successfully casts its signature move Pay Day and generates cash for you. Now replace Meowth with the investment you just bought, leveling up represents growth in investment value and capital gain, while Pay Day proceeds represents cash flows and dividends.
These 2 factors combine to increase your wealth.
Choosing a suitable investment vehicle
So you are ready to catch your first investment, but which investment type should you buy? To answer this, there are 2 questions you have to ask yourself:
1) What is your risk appetite?
Risk appetite refers to your willingness and ability to accept volatility in your investment value. It is like choosing a Pokemon. A risk adverse trainer might choose a lovable, nurturing Chansey as your Pokemon, slowly and steadying training it to higher levels with no expectation of explosive growth. A risk taking trainer might choose a volatile Charmander as your Pokemon, which might experience explosive growth when it evolves into a Charizard, but you might get burnt from time to time.
Similarly, a risk adverse investor will be happy with steady but comparatively lower returns, while a risk taking investor will have to accept more volatile but potentially higher returns.
2) How active do you want to manage your investment portfolio?
This essentially means how much time you wish to spend managing your portfolio. Are you like a Snorlax and would rather Rest than manage your portfolio? Or are you a hard working Magikarp that tirelessly Splashes your way to Gyarados financial freedom?
Based on your answers to those questions, you can choose the investments suitable to your personality.
As a beginner investor, picking the right investment class to start with is very much like choosing a starting Pokemon. Aligning your risk appetite and involvement with the suitable investment allows you to be comfortable with your investments through thick and thin. Till next time!
KK Professor Oak
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