The investment route to becoming rich envisages investing money in various assets in the hope that that they would appreciate in value over time. When you adopt this strategy to become rich, you would need to create an investment portfolio. The investment portfolio is nothing but a collection of the assets that you own or intend to own. These assets would be purchased with the intention of earning money from them through income or to sell them when their value increases. Creating an investment portfolio is not just making a list of assets. It needs to be prepared after a lot of thought and analysis. This portfolio will make you rich and hence you need to put in time and effort to create it.
Let us look at the steps involved in creating a good investment portfolio that can help you become rich.
- Asset allocation
This is by far the most important part of the process of creating an investment portfolio. There are many assets that you can invest in to make you rich. You need to decide which assets you would like to buy and how much money you would like to allocate to each of these assets. The following are some of the assets that you can consider:
Equity represents ownership of a company. It is generally used to refer to stocks or shares of a company that are owned by shareholders. These shares are traded on the stock market and their price varies depending on many factors including company performance, industry performance and the state of the economy. Shares can increase in price by leaps and bounds. This can help you become rich very quickly, provided you pick the right stocks.
Equity is also used to refer to mutual funds and exchange traded funds. These funds are managed by professional fund managers who use investment collected from the public to invest in stocks (and other options too). If you buy mutual funds, you would be indirectly investing in stocks. The difference is that when you buy stocks the decision is yours, whereas in a mutual fund the decision is the fund managers.
Equity carries risk, as the stock market is volatile in nature. However, staying invested over a long period of time helps to reduce the risk. Historically, investment in stocks and mutual funds has yielded good returns over the long term. It is a good way to earn money and be rich. Your investment portfolio must have equity to help you earn more money.
Debt refers to borrowings made by companies or by the Government. When the Govt. or a company is in need of funds, they can borrow money from the public through the use of various debt instruments. Treasury bills, bonds, debentures, and deposits are some of the debt instruments used to raise funds. A company that needs money for a project or for expansion can offer bonds to the public for sale. You can buy these bonds and are assured of getting interest on the money you invested. The company would invest the money raised through bonds for its work and payout regular interest. Once the term or the bond period is complete, you can redeem the bond to get its value in money.
You cannot earn a lot of money from debt instruments. Generally, they would be around the same that you would earn from banks as interest or a little more. The reason why you need to invest in debt is for safety. Investing in government debt instruments offers 100% safety. Investing in private debt has an element of risk. To reduce risk, you need to look at the credit rating of the bonds and buy only those that are rated highly for their safety.
People invest in debt instruments for capital protection, so that the capital you invest will not be depleted. You can also hope to earn a decent return on your investment. Once again, we must point out that the returns you earn here will probably be half or less than half of what you can earn in the stock market. It is safe and hence preferred by many investors. You must include debt instruments in your portfolio.
These are physical assets like gold, silver, diamond, and other precious metals. They may be purchased in the form of bars or in the form of jewelry (where their value is slightly reduced due to processing). Commodities like gold generally rise in value. It is observed that even if the stock market were down, the value of commodities would rise. This is not a certainty, still it is a good investment to help you balance your portfolio.
Apart from buying commodities physically, you can also buy them virtually through the commodities market. Here, apart from metals you can also buy wheat, rubber, oil, and other such commodities in the derivatives market. You would be not buying to own these commodities but would buy futures and options. This is essentially speculating the future price of these commodities to earn money. It is a risky investment but can help you make money. You can consider this only if you have sufficient knowledge about the market.
- Real estate
Real estate involves the purchase of land and buildings. Real estate, just like other assets would increase in value over time. You can buy property today and then sell it at any time when it rises in value. Unlike the stock market, prices will not be volatile. In general, there is a good demand for real estate, and you can expect very good returns over a long term. If there is a fall in the market, then it may take a very long time for prices to pick up again. Unlike other assets, real estate requires a lot of money to invest. This is an asset you can consider for inclusion in your portfolio.
- Alternative investments
This includes investing in assets that are not conventional in nature. This can include investing in artwork like paintings. These investments are usually done by high net worth individuals. Other such investment options include bitcoins and hedge funds. These can potentially earn you huge returns but are highly risky in nature. They are meant for investors who have sufficient knowledge of these assets.
- Retirement fund
There are some experts who say that a retirement fund is not actually an asset. However, saving money for retirement is one way to become rich. Your employer may offer a retirement plan by which money is deducted from your pay every month and transferred to a retirement fund. The fund would invest your money in the stock market, debt instruments and other options of your choice. By the time you retire, the fund would have grown in value and would help you generate money for your retirement needs. Apart from what the employer provides, there are other retirement accounts or retirement plans that you can consider during the process of creating an investment portfolio.
- Understand your risk
Now that you have understood the different types of assets, where you can invest money, you need to understand about risk. In simple terms, risk is the possibility of your assets losing value. From the above assets, debt instruments have very low risk, especially instruments backed by the government, which have zero risks. All other assets have varying levels of risks. Stocks are risky; but when held over a long period of time can lead to a reduction in risk. Bitcoins and derivatives are very risky. To create a portfolio, you need to understand your risk tolerance.
Risk tolerance is how much risk you can tolerate. If you are not ready to tolerate any risk, then you must invest 100% of your portfolio in debt instruments, and only in government backed debt instruments. The returns you earn here will be less, but there is no risk. If you ready to take a little risk, you can invest in private debt instruments. The higher the risk you are ready to tolerate, the more diverse your portfolio can be. Based on how much risk you are ready to tolerate; you can be classified as:
- Aggressive investor: is ready to take more risk. If you are in this category, you can invest more money in stocks and in real estate and derivatives.
- Balanced investor: is one who is willing to take a risk in return for reward. However, this type of investor would want to invest some money in safe options to balance the possibility of losses from aggressive investments.
- Conservative investor: This investor is more interested in protecting capital and would be willing to take low levels of risks by investing little money in stock/real estate.
- Safe investor: is one who is not ready to take any risk and is happy investing all the money in debt instruments.
- Create your portfolio
Having understood the types of assets and risks, it is now time to allocate money for assets and create a portfolio. If you are confused about the process, you can meet a financial advisor who can help you understand your risk tolerance and then advise you on how to allocate assets. If you are confident that you can do it on your own, then you can consider the ‘100 minus age’ rule. This rule states that you should invest 100-your age in equities. If you are 30 years old, you can invest 70% of your money in stocks and mutual funds and the rest in debt instruments. This is just a thumb rule; you can follow the pattern of investment that suits you.
Before you start allocating assets, you need to identify your investment goals. You are investing money to become rich; but how much money do you need? When do you need the money and what for purpose? The answers to these questions would help you decide your investment goals. For instance, you may need 100,000 in five years to buy a new house. This could be one investment goal. You may need a million in 25 years for your retirement. This could be another investment goal. Here, you can consider your retirement plan and also invest additionally to meet your target.
When you carry out asset allocation, you need to keep an important principle in mind, which is asset diversification. Diversification is spreading assets across different types to reduce risks. For instance, your asset allocation may look something like this:
- Real estate – 100,000
- Stocks – 100,000
- Large cap stocks – 50,000
- Mid cap stocks – 20,000
- Technology stocks – 20,000
- Small cap stocks – 10,000
- Debt – 30,000
- Bonds – 20,000
- Bank deposit – 10,000
This is an example of a diversified portfolio. You are investing in different types of assets and within each asset, you are further diversifying. When you buy stocks, you can invest in large cap funds of top companies that are usually safe. You can invest in mid cap funds that can be volatile but can earn you more returns. Since technology is popular, you can invest some money to buy stocks of technology companies. Small cap funds are low cost stock investments where you can gain huge returns or lose a lot of money. Diversifying your investment creates a balanced portfolio where the risk is reduced.
- Start investing
Once you create the portfolio, you can then start investing. For this, you may need to open a brokerage account to buy stocks/mutual funds. Make sure you stick to the portfolio you have created and invest money as per your plan. Periodically, you may need to rebalance your portfolio. This is required to remove assets that are deadwood and is not generating returns. You can replace such assets with better ones.
When you create an investment portfolio wisely, you can look forward to earning money from it and becoming rich. Some of the investment types like real estate can generate regular rent. Similarly, stocks can generate dividend. It would be better to reinvest this money to buy more assets. This will help you earn more money, to achieve your goal of becoming rich.
Robinhood plans confidential IPO filing as soon as March – Bloomberg News
(Reuters) – Online brokerage Robinhood, at the centre of this year’s retail trading frenzy, is planning to file confidentially for an initial public offering as soon as March, Bloomberg News reported late on Friday, citing sources.
The California-based brokerage has held talks in the past week with underwriters about moving forward with a filing within weeks, Bloomberg said.
Robinhood did not immediately respond to a request for comment.
Reuters reported last year that Robinhood has picked Goldman Sachs Group Inc to lead preparations for an initial public offering which could value it at more than $20 billion.
Robinhood was at the heart of a mania that gripped retail investors in late January following calls on Reddit thread WallStreetBets to trade certain stocks that were being heavily shorted by hedge funds.
The online brokerage tapped around $3.4 billion in funding after its finances were strained due to the massive trading in shares of companies such as GameStop Corp.
(Reporting by Ann Maria Shibu in Bengaluru; editing by Richard Pullin)
Analysis: How idled car factories super-charged a push for U.S. chip subsidies
By Stephen Nellis
(Reuters) – When President Joe Biden on Wednesday stood at a lectern holding a microchip and pledged to support $37 billion in federal subsidies for American semiconductor manufacturing, it marked a political breakthrough that happened much more quickly than industry insiders had expected.
For years, chip industry executives and U.S. government officials have been concerned about the slow drift of costly chip factories to Taiwan and Korea. While major American companies such as Qualcomm Inc and Nvidia Corp dominate their fields, they depend on factories abroad to build the chips they design.
As tensions with China heated up last year, U.S. lawmakers authorized manufacturing subsidies as part of an annual military spending bill due to concerns that depending on foreign factories for advanced chips posed national security risks. Yet funding for the subsidies was not guaranteed.
Then came the auto-chip crunch. Ford Motor Co said a lack of chips could slash a fifth of its first-quarter production and General Motors Co cut output across North America.
“It brings home very clearly the message that the semiconductor is really a critical component in a lot of the end products we take for granted,” said Mike Rosa, head of strategic and technical marketing for a group within semiconductor manufacturing toolmaker Applied Materials Inc that sells tools to automotive chip factories.
Within weeks, automakers joined chip companies calling for chip factory subsidies, and U.S. Senate Majority Leader Chuck Schumer and President Biden both pledged to fight for funding.
Industry backers now aim to be part of a package of legislation to counter China that Schumer hopes to bring to the Senate floor this spring. Still, all agree it will do little to solve the immediate auto-chip problem.
Headlines about idled car plants resonated with the public that had shrugged off abstract warnings in the past, said Jim Lewis, a senior fellow at the Center for Strategic and International Studies. Lawmakers, already worried that a promised infrastructure bill will not materialize this year, decided to push for quick solution.
“Nobody wants to be seen as soft on China. No one wants to tell the Ford workers in their district, ‘Sorry, can’t help,'” Lewis said. “It was one of those moments where everything aligned.”
The package includes matching funds for state and local chip-plant subsidies, a provision likely to heat up competition among states including Texas and Arizona to host big new chip plants that can cost as much as $20 billion.
The subsidies could benefit a factory in Arizona proposed by Taiwan Semiconductor Manufacturing Co and one in Texas eyed by Samsung Electronics Co Ltd, even though those factories would be geared toward high-end chips for smartphones and laptops, rather than simpler auto chips. And those factories would not come on line until 2023 or 2024, according to plans disclosed by the companies, the world’s two largest chip manufacturers.
In the longer term, a raft of U.S. companies are also poised to benefit. Any chipmakers that build factories will source many tools from American companies such as Applied, Lam Research Corp and KLA Corp.
Intel Corp, Micron Technology Inc and GlobalFoundries – which already have U.S. factory networks – will also likely benefit.
Smaller, specialty chip factories also could benefit.
“The recent chip shortage in the automotive industry has highlighted the need to strengthen the microelectronics supply chain in the U.S.,” said Thomas Sonderman, chief executive of SkyWater Technology, a Minnesota-based chipmaker that makes automotive and defense chips. “We believe that SkyWater is uniquely positioned due to our differentiated business model and status as a U.S.- owned and U.S.- operated pure play semiconductor contract manufacturer.”
Even with subsidies, the U.S. companies still must compete with low-cost Asian vendors over the long run, and the immediate auto chip troubles will probably persist.
Surya Iyer, a vice president at Minnesota-based Polar Semiconductor, which makes chips for automakers, said his factory is booked beyond capacity and has started to speed some orders up while slowing others down, to meet automakers’ needs as best it can.
“We are expecting this level of demand to continue at least for the next 12 months, maybe even longer,” he said.
(This story has been refiled to add attribution to quote in paragraph 9, add dropped words in paragraphs 10 and 17)
(Reporting by Stephen Nellis and Hyunjoo Jin in San Francisco and Alexandra Alper in Washington. Editing by Jonathan Weber and David Gregorio)
Atlantia disappointed with CDP bid for unit, continues talks
By Francesca Landini and Stephen Jewkes
MILAN (Reuters) – Italy’s Atlantia said on Friday an offer by a consortium of investors led by state lender CDP for its 88% stake in Autostrade per l’Italia fell short of the mark and asked its top managers to see if the bid could be sweetened.
“The offer falls below expectations,” the Italian infrastructure group said in a statement, adding it had mandated the chief executive and the chairman to assess “the potential for the necessary substantial improvements” to the bid.
Italian state lender CDP, together with co-investors Macquarie and Blackstone, has presented a proposal valuing all of Autostrade per l’Italia at 9.1 billion euros ($11 billion).
The consortium also requested Atlantia guarantee up to 700 million euros in potential damage claims and another roughly 800 million euros for a pending legal case, making the bid less attractive than previously expected.
One source said the consortium estimated overall pending legal claims against Autostrade at 3 billion to 4 billion euros, adding the 700 million euro cap did not mean the amount would be detracted from the offer price from the start.
Earlier on Friday Atlantia’s minority investors TCI and Spinecap had called on Atlantia’s board to reject the offer, saying it undervalued the asset.
“No deal is better than a bad deal, especially a bad deal and a wrong price,” TCI Advisory Services partner Jonathan Amouyal said in a emailed comment to Reuters.
TCI, which holds an indirect stake of around 10% in Atlantia, repeated that the value for 100% of Autostrade should be no less than 12.5 billion euros.
The board will hold a further meeting in order to take a final decision on the offer in due time, Atlantia said.
The negotiations between Atlantia and the CDP-led consortium are part of an effort to end a political dispute over Autostrade’s motorway concession triggered by the collapse of a motorway bridge run by the unit.
(GRAPHIC – Atlantia share performance: https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqggjdpx/image-1614331237501.png)
The bid expires on March 16, but the deadline could be extended in case Atlantia calls an extraordinary shareholders meeting (EGM) on the issue, according to one source with knowledge of the matter.
Shares in the group ended down 0,7%, after recovering some losses, as investors waited for the decision of the board.
Atlantia, which is controlled by the Benetton family, owns 88% of Autostrade, with Germany’s Allianz and funds DIF, EDF Invest and China’s Silk Road Fund holding the rest.
The group also kept open an alternative plan to demerge and sell its stake in Autostrade per l’Italia unit and called an EGM on March 29 to extend to end-July a deadline for offers for the demerged stake.
(Additional reporting by Stefano Bernabei, editing by Louise Heavens and Steve Orlofsky)
Sunak to give UK Infrastructure Bank £12 billion of capital in budget
LONDON (Reuters) – British finance minister Rishi Sunak is expected to announce an initial 12 billion pounds of capital and...
Robinhood plans confidential IPO filing as soon as March – Bloomberg News
(Reuters) – Online brokerage Robinhood, at the centre of this year’s retail trading frenzy, is planning to file confidentially for...
Wall Street Week Ahead: Investors weigh new stock leadership as broader market wobbles
By Lewis Krauskopf NEW YORK (Reuters) – A shakeup in stocks accelerated by the past week’s surge in Treasury yields...
SoftBank reaches settlement with former WeWork CEO Neumann
(Reuters) – SoftBank Group Corp said on Friday it has reached a settlement with WeWork’s special committee and the company’s...
Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT
(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the...