Understanding Finance from scratch

Chapter 26 How to Make Money Make Money, Deposit in the Bank or Invest——Learn some knowledge about investment and financial management every day (2)
In the field of investment, if the bank interest rate is used as the benchmark for the return of social funds, investors can create excess returns by investing in financial products with stronger profitability than the benchmark.Over the years, the effect of compound interest will eventually appear.The empirical research done by the author shows that from 2003 to the first half of 2006, among the domestic open-end funds, the yields of the top-ranked varieties were 35.8%, 16.3%, 18%, and 36.4% each year, and the bottom-ranked The yields of the varieties are 12.5%, 11.3%, 8%, and 18%, respectively.Let us make an assumption, if you invest 2010 yuan in open-end funds since 1, and if you are lucky enough to get the number one product every year, then your original investment has been calculated by compound interest. It becomes 2.54 yuan; even if you are extremely unlucky and stay with the last breed every year, your assets are still 1.08 yuan, and the income is equivalent to bank deposits.As an ordinary investor, luck should be between the above two, the final assets should be around 1.8 yuan, and the total rate of return is 80%, which should be satisfactory.

Although the compound interest formula is not difficult to calculate, if there are many periods, the calculation is still quite troublesome. Therefore, there are many financial management books on the market, all of which list compound interest tables. Investors can easily calculate it as long as they follow the table.

However, although the compound interest table is easy to use, it is impossible to carry it with you all the time. If you need to calculate the compound interest remuneration, there is a simple "rule of 72" that can be used as a trick.

所谓的“72法则”就是以1%的复利来计息，经过72年以后，你的本金就会变成原来的一倍。这个公式好用的地方在于它能以一推十。例如：利用5%年报酬率的投资工具，经过14.4年（72/5）本金就变成一倍；利用12%的投资工具，则要6年左右（72/12），才能让1元钱变成2元钱。

Therefore, if you have 100 million yuan in your hand today and use an investment tool with a return rate of 15%, you can quickly know that after about 4.8 years, your 100 million yuan will become 200 million yuan.

Although using the rule of 72 is not as accurate as looking up the table, it is very close. Therefore, when you lose a compound interest table, remembering the simple rule of 72 may help you a lot.

The ubiquitous Matthew effect

The name of the Matthew effect comes from a fable in the Bible "New Testament Matthew": Once upon a time, a king was about to go on a long journey. Before leaving, he called his servants and handed over his property to them. Each one gave them silver for their talents.One gave 5000 taels of silver, one gave 2000 taels of silver, and the other gave 1000 taels of silver, and they set off.

The one who received 5000 taels of silver used the money to buy and sell, and made another 5000 taels of silver.The one who received 2000 denarii also earned another 2000 denarii.But the one who received the 1000 taels of silver went and dug the ground and buried the master's silver.After a long time, the king came back from his journey and settled accounts with them.The one who received the 5000 taels of silver brought the other 5000 and said, "Lord, you handed me 5000 taels of silver. Look, I made another 5000 taels of silver." The master said, "Okay, you are kind. And faithful servant. You are faithful in a few things, and I will put you in charge of many things, so that you can enjoy the happiness of your master.” The one who received the 2000 taels also said, “Lord, you handed me 2000 taels of silver. Two denarii, look, I have earned another 2000 taels of silver." The master said, "Okay, you are a good and faithful servant. You are faithful in a few things, and I will assign you management in many things. You can Enjoy your master's happiness." The one who received 1000 taels of silver also said, "Lord, I know that you are a hard-hearted person. You will reap where there is no sowing, and gather where there is no scattering. I am afraid, so I will kill you I buried the 1000 taels of silver in the ground. Look, here is your original silver." The master replied, "You wicked and lazy servant, since you know that I will reap where I have not planted and where I have not scattered Accumulate. Just put my silver to the money changer, and when I come, I can get it back with interest. So I took his 1000 taels of silver and gave it to the servant who had 10000 taels of silver."

This little story later evolved into the famous "Matthew Effect".So, how to explain the Matthew effect in economic life?
The "Matthew Effect" is everywhere and all the time. In the 20s, the well-known sociologist Robert Morton attributed the phenomenon of "the poor getting poorer and the rich getting richer" to the "Matthew effect" for the first time.Once any individual, group or region achieves success and progress in a certain aspect such as money, reputation, status, etc., it will have a cumulative advantage and have more opportunities to achieve greater success and progress.Today, the extended significance of the Matthew Effect in the economic field is that the poor get poorer and the rich get richer.

In fact, this is easy to understand, because it is the same in terms of money: Even if the return on investment is the same, a person whose capital is 10 times more than others can earn 10 times more; There is no return; companies with strong capital can indulge in various marketing methods to promote their products, while small companies can only live in the cracks.

Since the Matthew effect also exists in the economic field, how do you manage your personal property?Should I keep it in the bank, or use it to make more money?Is your wealth increasing or decreasing?
Under market economy conditions, many smart investors have already started their investment practice.Taking fund investment as an example, those investors who dared to be the first in the world to buy open-end funds in 2001 and those investors who bought funds decisively in 2002 when the stock market was still in a long bearish way, as long as they adopt a long-term investment approach , must be able to obtain staggering returns, and must have accumulated more capital advantages and investment experience than people who have just started fund investment. They have become the lucky few who enjoy the positive effect of Matthew.And if they reinvest dividends instead of cash dividends, they can use the power of compounding to grow their capital faster.Einstein once lamented that the most powerful force in the universe is compound interest.The simplest explanation of compound interest is "money rolled into money", that is, the interest generated by the principal, and then put back into the principal to continue to generate interest.That being the case, there can be no doubt that we must serve ourselves by the aid of this most powerful force.

Another feature of the Matthew Effect is that one step ahead, every step ahead.Once you decide, it's never too late to start.At the same time, long-term holding is another important principle.

If you want to know whether your investment project can double within a few years, there is actually a simple calculation formula, which is the "rule of 72" often mentioned in our financial circles - divide 72 by the average annual investment rate of return , so that you can calculate how many years it will take you to double your current principal under the conditions of your current savings or return on investment, that is to say, how many years will it take to change the principal from 1 yuan to 2 yuan?

If your investment principal is 10000 yuan, if it is all stored in current savings, it will take 90 years for the principal to double; if it is all invested in national bonds with an average annual return rate of 4%, the principal will only need 18 years It can grow to 20000 yuan; if all the funds are invested in stock funds with an average annual return rate of 22%, the principal can be doubled in less than 4 years.

For ordinary investors, "saving" and "investing" are the two main ways to accumulate wealth.On the surface, savings seems to be the least risky, and you can get stable interest, but in the era of low interest rates, savings alone cannot meet your requirements for wealth accumulation. "It's not as good, because inflation has greatly weakened the purchasing power of those silver, which is equivalent to finding that a large piece of silver is missing when you open the cloth bag.In this case, only effective investment can effectively resist the risk of inflation, because on the one hand, inflation will depreciate the currency, and on the other hand, it will increase the value of assets measured in currency. If you hold assets that can increase in value, you will naturally Don't be afraid that inflation will erode your purchasing power of funds.

When you have the capital to invest, you should seize the opportunity to invest, instead of just putting the burden of asset appreciation on salary income, you should let the two wings of making money and investing fly together.

Save shrinking wallets with gold investments

Mr. Li from Jiangsu is the owner of a building material store. He has some investment funds at hand, and he has been fighting in the stock market before.Under the persuasion of his relatives, he bought some investment gold bars from a large bank, but the investment was not very large, and most of it was still invested in the stock market.Unexpectedly, after one year, the stocks he had worked so hard to research suffered losses due to market fluctuations, while the gold bars he bought for "play" had already earned him more than 25% of the profit.

Mr. Li was very excited, and soon studied the trend of gold over the years, and found that gold is really a good thing. Except for some small twists and turns in the process, the overall trend is always upward. The high point in the first year often becomes low for the next year.And the stock market that made him very sad, the high point of 3 points three years ago has not yet passed halfway up the mountain.From then on, he had the idea of ​​"abandoning stocks and investing in gold".

So what are the options for investing in gold?What are their advantages and disadvantages?
When the price of gold broke through $1400, American investor Jim Rogers excitedly yelled a bold statement: "I will never sell gold again in my life!" The performance of gold in the past two years has indeed been surprisingly good.At present, the CPI is rising, the stock market is turbulent, and the property market is regulated, but gold investment is in full swing. The gold market has soared by more than 30%. Gold people who have the foresight have become the lucky ones. flocked.

In fact, there are risks in gold investment. There are two biggest risks: the first is the risk of price fluctuations. Due to insufficient information, ordinary investors cannot accurately predict the trend of gold prices, and improper operations will cause losses; the second is the risk of inflation. The income from gold investment cannot keep up with the increase in CPI, and it is actually a loss.

So, what gold investment methods can ordinary investors choose?
First option: physical gold.For ordinary people, physical gold feels real in their hands. In addition, physical gold has a good anti-inflation effect and is suitable for investors who want to hold it for a long time in order to preserve its value.If you are busy with work, do not have enough time to pay attention to the fluctuation of gold price, and have sufficient spare funds, you may consider investing in physical gold.However, investing in physical gold also has its disadvantages, mainly high price, poor liquidity, difficult storage, inconvenient cashing and natural loss.In addition, investors should try their best to choose "standard gold" with international (domestic) certification, and should not choose common commemorative gold bars, New Year's gold bars and other "craft gold bars" and "ornament gold".

Second option: paper gold.Paper gold is an investment form that does not involve physical objects and only conducts account transactions. Customers can realize profits by buying low and selling high, but they cannot withdraw physical gold.Since the customer's counterparty is the bank, the credit of the bank and the trading environment provided by it are very important. If the bank fails or the trading system fails, the customer will face irreparable losses. Of course, this situation is very rare in our country.

Generally speaking, it is very good for gold investment beginners to choose paper gold. At present, the threshold for bank paper gold investment is only 10 grams, and the price is only about RMB 3000.Novices can operate with light positions to set aside funds for maneuvering, and gradually increase their positions after they are proficient.

Gold stocks are also a good bet.The so-called gold stocks refer to listed or unlisted stocks publicly issued by gold mining companies to the public, so they can also be called gold mining company stocks.Since buying and selling gold stocks is not only investing in gold mining companies, but also investing in gold indirectly, this investment behavior is more complicated than pure gold trading or stock trading.Investors should not only pay attention to the operating conditions of gold mining companies, but also analyze the price trend of the gold market.

That is to say, the elasticity of gold stock price is greater than that of gold price. When the gold price rises, the increase of gold stock price is greater than the increase of gold price, and vice versa.Therefore, investors who invest in gold stocks can take the rise and fall of the international gold market as an important reference for investing in gold stocks. At the same time, they should also pay attention to preventing systemic risks in the domestic stock market.

Gold funds are a relatively safe investment.Gold Fund is the abbreviation of Gold Investment Mutual Fund. The so-called Gold Investment Mutual Fund is established by the fund sponsor and subscribed by investors. The fund management company is responsible for the specific investment operation and invests in gold or gold derivatives. A kind of mutual fund for the media.Managed by an investment committee composed of experts.The investment risk of gold fund is relatively small, and the income is relatively stable, which has the same characteristics as the securities investment funds we are familiar with.

Gold coin investment is also very popular among gold investment enthusiasts.There are two types of gold coins, pure gold coins and commemorative gold coins.The value of pure gold coins is basically consistent with the gold content, and the price basically fluctuates with the international gold price.Pure gold coins are mainly collected by coin collectors.The pure gold coins of some countries are marked with face value, such as Canada once minted gold coins with a face value of 50 yuan, but the pure gold coins of some countries do not have a face value.Since the price of pure gold coins is basically the same as that of gold, the premium when they are sold is not high (that is, the price difference between the value of the gold contained in it and the price of the sold gold coins), and the value-added function of investment is not great, but it is beautiful, appreciative, and has strong circulation and liquidity and value preservation. function, so it still appeals to some collectors.Commemorative gold coins have a relatively large value-added potential due to their large premium, and their collection investment value is much greater than that of pure gold coins.The price of commemorative gold coins is mainly determined by three factors: first, the smaller the quantity, the higher the price; second, the longer the casting period, the higher the value;Commemorative gold coins are generally circulating coins, marked with face value, more liquid than pure gold coins, and do not need to be converted and cashed out according to the gold content.Due to the relatively small number of commemorative gold coins issued, they have appreciation and historical significance, and their functions have greatly surpassed circulation functions. Investors are mostly for investment value-added, collection, and appreciation, and the investment significance is relatively large.

And if you are an experienced investor with strong risk tolerance, strong financial strength, then gold T+D business may be more suitable for you.Gold T+D, that is, gold spot deferred delivery business, is a gold derivative product with a leveraged nature. As long as a certain amount of margin is paid, gold transactions that are several times higher than the principal can be operated, which is a risk Greater speculation.

At present, the gold T+D business of many banks is traded with 15% margin, and the leverage ratio is 6 times.If an investor buys physical gold or paper gold with 20 yuan, the amount is equal; if it is gold T+D transaction, according to the 15% margin ratio, only 3 yuan is needed.

Gold T+D has a short-selling mechanism. Once the market reverses after long orders enter the market, you can close the long orders, backhand short, and make up for the lost money.But just like the matching of risk and return, the gold T+D business is much higher than paper gold and physical gold, and is suitable for people with rich investment experience.

When more investors enter the gold market one after another, and the international gold price hits new highs repeatedly, how much gold can be "mined" in the gold market?Profit and risk are always accompanied. When gold investment paves a golden road for investors, investors should pay more attention to the traps under their feet.

Stock Investing: Picking a Growth Stock
The well-known political figure Churchill also joined the army of stock speculation, and he ended up admitting losses. In 1929, Churchill and several companions came to the United States after he had just stepped down as the British Chancellor of the Exchequer, and were warmly received by the speculator Baruch.Baruch took the utmost care and specially accompanied him to visit the New York Stock Exchange.In the exchange, the tense atmosphere deeply attracted Churchill.Although he was over fifty years old at the time, his aggressiveness made him determined to give stocks a try.

In Churchill's view, stock trading should be a trivial matter.Unfortunately, however, the U.S. stock market crash that changed the world economy and even the world's political landscape broke out in 1929. The time when Churchill returned to New York coincided surprisingly with the start of the collapse of the Wall Street stock market.As a result, in just one day on October 10, he almost lost all the US$24 invested in the stock market (some sources say about 10 pounds).

This is stock speculation, and the consequences of speculation are likely to be ruin.A reasonable suggestion is that if you want to invest in the stock market, the safest way is to stick to the philosophy of value investing and choose growth stocks.Or you've heard a lot about value investing, but have you actually tried it?
If you want to use stock investment to create wealth, then you might as well try value investing.Many stock investment masters believe that investors should concentrate on choosing companies that can enable them to obtain maximum returns with minimum costs and risks, that is, to choose real "growth stocks".For example, Fisher once proposed 15 points for choosing growth stocks, and believed that if a company can meet quite a few of the points, it will have relatively high investment value, and it can also be called a "growth stock."Simply put, these 15 points roughly revolve around the following four aspects:

(End of this chapter)