When you jump into the market and get all flustered (which you will at first), it’s always good to start with the basics. What are they?  Investing in Financial markets.

Diversification is key to a strong portfolio. It begins with the Top-Down formula which has Markets as the main first step.

4 Things to understand when Investing in Financial Markets –  Understand, Dissect and Invest In

1. Sector Funds

Most stocks are found in sector funds that can range from technology to schools to healthcare and more.

What’s your pick of the week? Normally you would start with what you understand most and enjoy.

For example: You’re a huge moviegoer. Chances are you understand a little about blockbusters or mergers in the movie industry. Like Disney’s Avengers that brought in over one billion bucks and also their merger with Lucas Films (Star Wars). Such news and huge deals move stocks and the sectors they are in.

You can actually invest in one particular stock or in the entire sector.

If you’re a long term investor less than 10% of your portfolio can be in each desired sector or stocks of a sector. And diversification with a few different stocks or sectors is key.

However, if you’re a day trader or swing trader I recommend you focus on one particular sector, with a few stocks. So not to get too overwhelmed with what’s going on in each sector since you’re goals are to get in and out as quickly and profitably as possible. Then move on to the next sector, or stick to the same one over and over again.

2. Real Estate Funds

Or better known as REIT’s focus specifically on all things in real estate. A huge benefit/bonus of owning in this sector is that they normally pay a higher than normal dividend yield.

Again, if you’re a long term investor 10% of a particular REIT share or sector is recommended for your whole portfolio.

For day trader or swing trader  – play it as you would any other stock – and focus only on this sector to make the best decisions while trading.

3. Precious Metal Fund

The Gold and Silver market along with other mining companies and metals and minerals are considered to be one of the most volatile. They mainly go up and down with the inflation % and information.

The best way to play this arena would be:

• ETF’s for each metal or mineral

• ETF’s for the mining companies

• Futures – the contracts for the metals – very expensive and most risky

4. Index Funds

the safer way to invest. This is used mainly by beginner investors. Normally this is done via ETF’s for the index. They are way way more affordable and literally move the exact same way as the actual index.

Related Read: Difference Between Trading and Investing

Most Popular Indices to Invest in:

• ^DJI – Dow Jones Industrial Average

• $SPX.X – S&P 500

• ^IXIC – Nasdaq Composite
• ^RUT – Russell 2000