ABCD... ETF?

In this blog post, we're delving further into the world of investing. Before you start picturing people in fancy suits and shouting on a busy trading floor, let us assure you that investing isn't just for Wall Street wizards. It's also for you, and we are here to demystify the jargon and break down some of the basics in this blog post.

Why should you care about investing?

First off, you should know that you most likely already are invested in the markets – at least if you’re employed and pay into your pension fund. Because this money is in some way or another being invested in the markets, meaning you’re already passively invested in shares, bonds, and various other assets. But of course, active investing is a completely different story. 

Let’s make use of a metaphor and imagine you're baking a cake. You gather all the ingredients: flour, sugar, eggs, butter, and so on. Individually, these ingredients are just that – ingredients. But when combined and baked, they transform into a delicious cake. Similarly, investing is like baking that cake. By carefully selecting the right investments, you're essentially mixing the ingredients of your financial future. And just as a cake can bring joy and satisfaction, investing can bring you opportunities. But be careful, because investing involves risks: Just like the wrong mix of ingredients will not result in a good cake, careless investing can result in losing money. 

One of the key things when investing – depending on your strategy, of course – is knowledge. Just as you need to know what you’re doing when baking a cake, your investments need to be founded on solid information. Investing guru Warren Buffett would agree, because it was him who said: «Risk comes from not knowing what you're doing.» Let that sink in.

When you know what you’re doing, investing can be a great thing. It offers you the opportunity to participate in the success stories of companies you believe in. When you invest in shares or ETFs, you become a part-owner of companies, sharing in their triumphs and reaping the rewards. But not necessarily: If the companies you’re invested in are not successful, you can lose all of your money in the worst case. That’s why diversification is important. By diversifying your portfolio, spreading your investments across different assets and sectors, and making sound investment decisions, you can reduce the risk of putting all your eggs in one basket.

Why are we offering investment in the neon app?

As you know, at neon we’re all about shaking up the Swiss baking banking industry. By offering investment opportunities at a low cost, we're opening up a world of possibilities for you. Last but not least, of course we also earn money with our new feature. Click here to find out more about how exactly our pricing works and here for further information about how we earn money in addition to neon invest.

Basically, neon invest is our way of breaking down the barriers that traditionally made investing seem complicated and inaccessible. We believe in levelling the playing field regardless of your background or experience. That’s why we’re making it easy, low-cost, and convenient for you to start investing and to hold your portfolio over time – all in one app that’s available for free.  

Why is neon invest relevant to you?

To many people, investing may seem like a distant world that is filled with complex terminologies and only accessible to a few wealthy individuals. But like we already said further up: Investing is not just for financial gurus or Wall Street insiders. With neon invest, investing is for everyone who is ready to do research and seeks to take control of their financial future.

Just like that cake recipe from above that calls for specific ingredients and techniques, investing requires knowledge, a strategy, and a pinch of patience. Since we’re no financial advisors, we’re not going to tell you how you should invest your money. And since we’re not your parents, we can’t teach you how to be patient. So, we’re left with knowledge. And because, as Charlie Munger, another investing guru, once famously said, «The best thing a human being can do is to help another human being know more» we are more than happy to help you out with some basic knowledge. So let’s take a closer look at some of the investing jargon you may encounter along your journey, either within the neon app or while educating yourself via other channels:

Shares: When you buy shares, also called stocks, you're essentially becoming a part-owner of a company. Yes, that's right – you can own a piece of your favourite brands! If the company grows and prospers, so does the value of your shares. Owning shares is like being a behind-the-scenes partner of a company and taking part in its success – or suffering from its failure.

ETFs (Exchange-Traded Funds): Think of ETFs as a basket filled with cakes of all types and sizes. ETFs are like a diversified and therefore usually well balanced collection of different assets, such as stocks, bonds, or commodities, all bundled together in one investment. ETFs generally aim to replicate indices so that you get access to a range of investments without having to buy each one on its own and carrying the risk of every single asset individually. In a way, investing in ETFs is like eating your cake and having it, too. As with all financial instruments, investing in ETFs also involves risks.

Dividends: Just as a slice of cake can be divided into smaller pieces to be shared, dividends are a portion of a company's profits distributed to its shareholders. People invest in dividend-paying stocks or ETFs to earn something on top of a positive price development. If a rising share price is a cake, dividends are the icing on it. Click here to find out how dividends are paid out to you when using neon invest. 

Portfolio: When you buy shares and ETFs, they land in your portfolio. Think of your portfolio as your recipe book, filled with various investments. Building a well-diversified portfolio is like having an array of recipes at your disposal, ensuring you have options for different market conditions.

Custody account fees: You don’t really need to know what custody account fees are since there are none with neon invest. But since we’re explaining basic terms, here we go: Custody account fees are fees charged for holding and safeguarding your investments in your portfolio and they can vary depending on the broker and the value of your holdings. But again: With neon invest, the custody account fees are zero, zip, zilch, nada. 

Risk Management: Just like adjusting the oven temperature and monitoring the baking process, risk management involves strategies to mitigate potential losses. It's important to understand that the value of investments can go up and down, and – we can’t stress this enough – there's always a chance you may not get back the full amount you invested. That’s why you should never invest more than you can afford to lose. Risk management is about striking the right balance between risk and reward and ensuring that your investment decisions align with your risk tolerance.

Diversification: Diversification is one of the keys to reducing risk. For example, by investing in stocks and ETFs from different industries, risk can be spread and chances of success can be increased. neon invest therefore offers investment options across different industries and sectors, giving you the opportunity to create a well-balanced investment mix for yourself. In order to make discovering those different sectors and industries easier for you, we’ve prepared a range of categories in the app.

ESG scores: These are not yet available in the app, but we’re working on implementing them soon. ESG scores stand for Environmental, Social, and Governance (ESG) scores that evaluate how companies perform in terms of their environmental impact, social responsibility, and corporate governance practices. They provide insights into a company's sustainability and ethical practices, helping investors align their investments with their own values.

Asset Allocation: Think of asset allocation as the recipe proportions in your baking adventure. It refers to how you distribute your investments across different asset classes. By allocating your assets wisely, for example across shares and ETFs, you create a well-rounded investment mix that suits your financial goals and risk appetite.

Compounding: Compounding is like the rising dough in your financial recipe. It's the money earned not only on your initial investment but also on the accumulated profits over time. By reinvesting profits, money can grow exponentially and magnify returns in the long run. 

Volatility: In short, volatility refers to the rapid and significant price fluctuations that investments may experience. Imagine baking a cake … No, enough cake for today. Let’s use another metaphor for this one: A roller coaster ride with thrilling ups and stomach-dropping downs. Brace yourself if you want to start investing, because the investing world can sometimes really be like a wild roller coaster ride – with both bears and bulls in the roller coaster cars. 

Bull and Bear Markets: When the markets are on fire and prices are rising, it’s called a bull market. It's like a stampede of positive sentiment, optimism, and rising prices. On the flip side, when the markets are feeling grumpy and prices are falling, it’s called a bear market and it feels like the markets are in a hibernation period. Bear markets are characterised by negative sentiment, pessimism, and falling prices. Understanding these market conditions can help you make informed decisions about when to invest or hold back.

Remember, investing is not a one-size-fits-all approach. It's always about finding the right mix of ingredients, techniques, and strategies that work for you. Also, investing isn’t a get-rich-quick scheme and anyone who tells you differently is lying. That’s why we are being honest and transparent, in true neon fashion.

By the way: If you want to know how neon invest compares to other providers, take a look at this blog post.