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8 introduction to investing principles

Updated: Feb 12, 2021

Gillen Markets held a webinar on an Introduction to Investing where they explored some key points to be aware of when beginning to invest including the following:

1. Approach: follow a tried and testing approach and stick to it so that you do not get swayed and lose your head in volatile markets. Having an approach and philosophy will enable you to cope and deal with volatility.

2. Compounding: have the patience to let the power of compounding work it’s magic.

3. Risks: be aware of the greater risks of investing in individual companies over having a balanced portfolio. The risks an individual company could be exposed to include poor management, management using inappropriate levels of debt, a changing market or that you overpay for that share in the first instance.

4. Irish Examples: closer to home, INM is a shadow of it's former self as a changing market demolished it's business model and Aryzta is heavily indebted with shareholder value having been decimated by poor management or the final Irish example of the risks of investing in a single company is perfectly illustrated by any of the Irish banks in 2007/8 which needs no further explanation.

5. Reducing risk: investing in a fund can help mitigate this risk as you spread your investment across multiple companies. The different fund structures include, passively managed funds i.e ETF’s and actively managed funds.

6. Balanced portfolio: a balanced and diversified portfolio will help mitigate risk, this can be done by spreading your investments across different assets classes offering the potential for uncorrelated returns. 'Uncorrelated means that there are no common factors driving the returns in one asset class compared to another.'

7. Economic risks: to be mindful of when considering investing include recession, inflation (while we haven’t seen it at a serious level in Ireland for quite some time, it may well return.) and deflation which is the mortal enemy of risk assets.

8. Economic conditions: The aim is to be positioned to deal with the 4 economic conditions as Rory Gillen outlined in this slide in his presentation. So for example to hold certain assets in your portfolio to hedge against the various economic conditions e.g holding gold to hedge against inflation or long dated government bonds for a period of deflation.

As always none of the above constitutes advice and the above is a summary of a longer presentation delivered by Rory Gillen of Gillen Markets.

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