Money WhizDom: Decode the world of investing with knowledge

Adhvith Dhuddu, Regular Columnist

Wednesday, November 7; 12:00 AM

Investing without sufficient knowledge is like driving your car blindfolded or entering a football field with no gear on. You are bound to get clobbered and will end up on wrong end of a fiscal beating sooner rather than later. With that said, it also wouldn't be appropriate if the investing world hung a sign like, "Enter at your own risk," because risk in investing can be eliminated.

The first step is to become educated and learn about the different investment vehicles the financial universe has to offer. Just understanding all the available options wins half the battle, and the next step is analyzing these to see which investment vehicle will suit you best and yield the highest returns.

Investment opportunities abound, everything from currencies and commodities to real estate and stocks offer a chance to grow money. But when we identify an opportunity, it often appears hard to exploit due to lack of funds or information. Diverse investment vehicles are present to tap these opportunities, but we as students can use two specific instruments called Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) because they don't require capital in the hundreds of thousands and are easy to decipher.

With emerging markets looking more attractive, real estate dilly-dallying, and the commodity market experiencing a boom similar to the stock market in the late 90s, these financial instruments are becoming popular among amateur investors with less cash. Anywhere from $500 to $1,000 is sufficient to get your foot into investing and trading commodities, currency, mutual funds, real estate, stocks and emerging market securities. Something like this would have never been possible just a few years ago.

ETFs and ETNs function a lot like stocks. They can be bought and sold with the click of a mouse, and they don't charge annual fees like mutual funds, or consulting fees if you directly purchase real estate, or handling fees if you trade in commodities. For example, after your finance class you feel that the real estate market has hit its bottom and will rebound soon. Instead of regretting the fact that you can't buy a house in this depressed market, you can cash in on your prediction by purchasing a real estate ETF, which tracks the real estate market as a whole. If you are right, the price of the ETF will increase, and you can take home a tidy profit.

Two famous real estate ETFs are DJ Wilshire REIT ETF (ticker — RWR) and Vanguard REIT Index ETF (ticker — VNQ). REIT stands for Real Estate Investment Trusts. Investing in REITs can also give you some tax benefits. Maybe you diagnose the American economy as treading on thin ice and want to invest in precious metals such as gold, silver and platinum as a safe haven. Rather than shelling out $800 to buy an ounce of gold and get a special locker to store it, you can buy the gold or silver ETF (ticker — GLD or SLV) and watch it move in tandem with the price of gold. GLD quotes 1/10th the actual price of gold; for example, if an ounce of gold costs $768.50, the gold ETF, GLD, can be bought for $76.85.

You have seen oil prices skyrocket in the recent months and foresee no reprieve. But it would be ridiculous to buy ten barrels of crude oil, stack them in your apartment and sell them later. A much easier approach is to purchase the United States Oil Fund ETF (ticker - USO) and watch it rise in price as crude oil prices go up. There are ETFs that track the stock market indices like the Dow and NASDAQ (ticker — DIA and QQQQ), but what if you think the stock markets are headed down? Amazingly there are ETFs that track the stock markets in reverse. For example, UltraShort QQQ (ticker — QID) tracks the NASDAQ in reverse direction times two, e.g., if the NASDAQ goes down 2 percent the QID increases by 4 percent, and if the Nasdaq goes up by one percent QID would go down by 2 percent.

Stock markets in Southeast Asia and Latin America have been buoyant, and this optimism will persist for some time to come. Again through ETFs, you can invest in countries such as China, Japan, Korea, India, Brazil and Russia without worrying about transferring money, exchanging currencies and setting up local investment accounts.

There are lots of other ETFs and ETNs that track mutual funds, hedge funds, commodities, individual sectors, economic indicators, etc. So, exploring investing through ETFs and ETNs is a good way to start investing even if you lack sufficient funds or posses limited information.

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http://www.collegiatetimes.com/stories/2007/11/07/column__decode_the_world_of_investing_with_knowledge