Question:
Which is the better option to invest in (equities, bonds or foreign currencies)? I need your help because I am new to capital markets.
Giriraja from Cautionville
Answer:
Giri, do you mind if I call you “Giri?” Anyway, your question is broad and full of potential disagreement if answered “off the cuff.”
Investing, which means putting your money to work over a long period of time, implies diversification, which means spreading your investments among a variety of categories, such as the three you mentioned. One diversifies for two primary reasons—maximize gains and minimize losses.
Since you are new to capital markets, I would caution you about investing in anything on your own. Even though investing implies a long time horizon, it is still trading. In other words, you are still buying and selling, and whenever you do this on your own, you need to know what you are doing. So if you are not ready to learn all you need to learn about investing, invest in a solid mutual fund, or get a financial advisor.
If you ignore me, don’t ignore this—all three categories you mentioned carry substantial risk. This is where the disagreement I mentioned earlier comes in. For example, some would argue that the bond market is a safe, conservative investment, but don’t believe this on its face. Just ask anyone who held high-yield bonds last fall. Equities, of course, carry risk. Just look at the Dow Jones Industrial Average in December 2007 and then compare that to early March 2009. Forex (foreign currencies) carries its own specific set of risks, and one should be careful when trading in this arena.
Whatever you choose to do here, do it with your eyes open and with an understanding of what you are trying to accomplish.
Trade in the day; invest in your life …
