Some warnings first…

Some activities are legitimate only for a professional trader. You are not one.

Selling short

Meaning you sell something you haven’t got for delivery at a date in the future, putting on you an obligation to buy it in the future and deliver it to the original buyer. You lose if the price has risen and gain if it’s fallen. The most you can gain is the amount of original value if the future value goes to zero. The amount you could lose is unlimited (at least, only limited by the extent that the value could possibly grow).

‘Spread Betting’ and ‘Contracts for Difference’

Two versions of much the same thing. The buyer promises to pay the seller the difference between the prices of an asset on two different dates. The same as ‘selling short’ but more complicated. There will be cash deposit requirements that may also be complicated.

Assets where you are just betting on a price change

E.g. art, commodities, currencies. This is speculation, not investment. Speculation works if you know more than the other market players.

Bitcoin

See above. This is a new type of currency, but supported by the integrity of a computer system, not by the promises of any nation state.

Structured Bonds

Let these be the flag bearer for ‘any product where a medley of sometimes-unusual financial promises are packaged together by a financial institution which extracts fees and sells them on to you’. There is no legal restriction on the use of the word ‘bonds’, so it is popular with the pedlars of these products. Google on ‘minibonds’ for a cautionary lesson.

Corporate bonds

These are a legitimate investment to reduce your risk (in exchangee for reducing your return). But they are surprisingly tricky. Let others do it for you - in reputable pension products for example. You shouldn’t do it for yourself until you qualify for Hard Money.

Stop Losses

This is a service offered by brokers to limit your losses on individual shares. But you don’t care about losses on individual shares so long as you make profits on other individual shares. If these were called ‘stop profits’ and advertised as ‘limiting your profits on individual shares’ would you do it? Unnecessary trading incurs unnecessary trading costs. Avoid.

On your way to Simple Money

You now know enough to be able to manage your money adequately, though not as well as you might.

You don’t necessarily know about execution - it’s not our subject - but there’s a mass of material out there to help you.

Your takeaways from Easy Money:

• Continuous open money-management process

• Control spending

• No debt

• Have a cash cushion

• Insure against disaster

• Put savings into a balance of cash and equities

• Balance risk and reward - both are equally important

• Value flexibility

• Spread your risk (diversify)

• Inflation matters

• Costs matter, and annual percentage costs are killers

• Tax matters

• Your home is an investment

• Pensions are important, necessary and complicated

• Fraud!

If it looks too good to be true it probably is. It’s a jungle out there.

Simple Money will take you forward.