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Main Dictionary H

Holdings

Holdings — are the elements of an investment portfolio held by the juridical or private person. Holdings include various investment products intended to save and increase funds. The number of holdings depends on diversification. 

Knowing how to choose and work with holdings is important because it helps to increase the income currently or in retirement. The possibility to invest and to have a holding is a necessary thing for countries with a developed economy.

Types of Holdings

Holdings include various types of investment products with different return levels. It is necessary to know how they work and their percentage of profitability. Some of them suit the conservative strategy. Others will be good for the risky investors. 

Before selecting a product for investment, it is necessary to know more about the types of holdings:

Stocks — are the shares of the publicly-traded company owned by third-party investors. The profitability of the stock depends on the profitability of the company. If the company works well, the owners of stocks receive the profit. But if the company is unprofitable, the stocks are the same. In such cases, the investors sell the stocks to save money. That’s why it is necessary to carefully select the company for investment and monitor its financial performance regularly. 

Bonds — are the loans taken from the juridical entity (government, company) to receive the further interest payment. The bond may give the holder the right to receive one-time or periodic income in the form of a percent of its nominal value. Sometimes the release of bonds has a certain goal, for example, partial financing of the social programs. The economic essence of bonds is very similar to lending. They allow you to plan the level of income and costs for the issuer and the level of income for the buyer but don’t require collateralization. Bonds simplify the procedure for transferring the right to a new creditor.

Mutual funds — are the managed portfolios that collect money from investors and allocate them to different investment instruments. All decisions concerning the money of funds are taken by the manager. These holdings are less risky because they are professionally regulated. The main thing is to find a qualified manager.

Exchange-Traded Funds (ETFs) — are the collections of assets that track the market index and provide the same amount of return. In contrast to mutual funds, ETFs are passively managed, they don’t have a person overseeing their level of profitability. Also, these holdings can be traded on the exchange market. This capability to be bought and sold makes them quite profitable. However, their price may change during the day.

Annuities — are the regular insurance payments during the period established by the contract between an individual and insurance company. The payment schedule can also be used to accumulate a certain amount of money for the future. In this case, the equal sums are regularly paid to the account or deposit, according to which the remuneration is accrued. By the time of the first payment, they distinguish two types of annuities — annuity in arrears (payment is made at the end of the first period) and annuity due (payment is made at the beginning of the first period).  

How to protect the Holdings

The perfect way to protect the holdings is the diversification of risks. Diversification is a distribution of invested or lent capital between various investments. Diversification doesn’t guarantee the maximum return, but it guarantees that the holding will be safe and sound. If one investment product depreciates, the other ones save the rest of the money. 

The key to successful diversification is to carefully select the companies and holdings from various areas and don’t store all eggs in one basket. 

Here are several tactics for the risk diversification:

  • Choose different types of investment instruments (stocks, bonds, securities, annuities).
  • Invest in companies from different fields. Mostly, the investors choose IT, healthcare, real estate, and energy sources.
  • Invest in both big and small companies especially when it comes to IT startups, they can be very profitable in the future.  
  • Choose companies from various countries. Pay attention to the countries with a stable economy because inflation may depreciate all money. 
  • Pay attention to the alternative things (gold, cryptocurrency, derivatives, hedge funds). However, before investing you should learn how these investments work. 
  • Find the holding company. These companies serve as a container where the other holdings are kept. 
  • Assess the risks properly. The most profitable assets are usually the riskiest ones. So it is necessary to pay attention to the risks and benefits ratio. 
  • Monitor the state of holdings. Read the economic news concerning the economy and stock exchange bulletins. If you see or have a premonition that the economy or company is collapsing you should check your hypothesis and transfer the money to a safe place, if necessary. 
  • Find a financial counselor, if necessary. This professional will help you find an appropriate investing instrument. 

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