Being able to grow your life's savings through investment is important. Over the past century, the US stock market has offered the greatest returns, outperforming the housing market and other types of financial securities. These are some important tips for every investor.

1. The Investing Triangle

Investing is a triangle formed by three axes: (i) return, (II) risk, and (iii) time.

Whenever you push one of the three axes, the other two will expand. This means that in any investment:

• If you wish to have high returns, the risk becomes higher and the timeframe needed to achieve these returns becomes larger
• If you wish to have high returns in a short period, you will have to deal with huge risks
• Never trust someone promising high returns and low risk in short time frames

Read more: Investing Tips & Advice

INTRODUCTION TO FUNDAMENTAL ANALYSIS

Fundamental analysis is a commonly used method for measuring the intrinsic value of a financial-traded asset based on the observation of economic and other 'hard' data.

1. Learn the Basics of Fundamental Analysis

Investment Analysis Framework

There are two forces forming an overall framework of investment analysis:

(i) Technical Analysis, and

(ii) Fundamental Analysis

The Goals of Fundamental Analysis

The main goals of fundamental analysis are:

(a) to identify the fair market value of a financial-traded security

(b) to identify and measure the impact of risks associated with an investment decision (risk identification is essential for managing your portfolio in an efficient way)

Fundamental Analysis Framework

A fundamental analysis framework consists of all major internal and external factors that can affect the future cash-flows of your investment.

(1) Internal fundamental factors

(2) External factors (business, macroeconomic, etc.)

Analyzing Economic & Business Cycles

What are Economic Cycles?

In general, economic cycles are the time periods between growth (economic expansion) and recession (economic contraction). The duration of each economic cycle is determined by key macroeconomic factors such as GDP growth, National Income, Inflation, Consumption, and last but not least, the level of Employment. The debt cycle is the key to each economic cycle.

The Role of Central Banks to the Duration of each Economic Cycle

What matters the most for a central bank is to have high employment and sustainable growth by controlling inflation.

Read more: Economic & Business Cycles

Treasury Bills (T-Bills) and their Correlation with Equity and Forex Markets

All investors must keep a close eye to what happens in the bonds market. Significant changes in the pricing of government and/or corporate bonds can be used as an indicator of upcoming economic transitions. In this context, significant changes in the yield of government bonds or changes in the spread between different-maturity bonds may forecast what is about to happen in the real economy, in the equity markets, and in the Forex markets. Actually, there is an important factor linking every financial market and that factor is the level of interest rates.

Government Bonds Classification

Government bonds, in general, are classified according to their maturity. There are three (3) main categories:

■ Bills –Maturing in less than one year

■ Notes –Maturity in 1 to 10 years

■ Bonds -Maturing in 10 years, or more

The marketable securities are issued as Treasury Bonds. Based on the length of their maturity they are called Treasury Bonds, Treasury Notes or Treasury bills (T-bills).

Read more: Treasury Bills (T-Bills)

The US government issues Treasury Inflation-Protected Securities (TIPS) to offer protection against inflation. The principal value of TIPS rises as Consumer Price Index (CPI) rises.

TIPS (Treasury Inflation-Protected Securities)

First issued by the U.S. Treasury in 1997, TIPS are fixed income securities that (as bonds) receive interest payments on the face value. The interest payment is adjusted to cover Consumer Price Index (CPI), plus to offer a minor extra return.

Read more: TIPS and How to Use them for Predicting Interest Rates

Commitments of Traders (COT)

The Commitments of Traders (COT) is an important report issued by the CFTC that shows the aggregated long and short positions in the futures market regarding all major asset classes including Forex currency pairs. The COT is considered an important indicator for analyzing market sentiment and future market conditions, especially as concerns the positions of non-commercial traders.

What is the COT (Commitments of Traders (COT) Report?

The Commitments of Traders or COT is a weekly report which measures total holdings of commercial and non-commercial participants in the US futures market. The COT report was firstly issued in 1962 incorporating 13 popular agricultural commodities. Originally the report was released on a monthly basis bust starting from the year 2000 it is released on a weekly basis. The COT report is available for all actively traded Futures contracts such is stock indices, interest rates, and currencies.

■ The Commitments of Traders includes a breakdown of the total futures positions of 3 different market participants:

(1) Non-Commercial traders / large speculators

(2) Commercial Forex traders / hedgers

(3) Small speculators (too small to be reported)

■ There are COT reports for many different asset classes including:

(a) Stock Futures (equity investors)

(b) Commodity Futures (precious metals, energy, etc)

(c) Currency Futures (including US Dollar against Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, Australian Dollar, Mexican Peso, Russian Ruble)

Read more: Commitments of Traders Report (CFTC)