This issue largely depends on individual preferences for choosing a strategy for working in the financial market. With an active approach, much is determined by the skills and efficiency of the bidder himself. Since the value of assets is constantly changing, the amount of profit (or loss) from many transactions is not limited. However, in case of losses, losses are limited to the amount of funds in the accounts. If we talk about a conservative approach, which is more common for large investors, then there are several important nuances.
The stock market does not guarantee profit
Stocks and most derivatives do not guarantee a return to the investor. Dividends can be changed or canceled, stock prices can go up or down, and options can burn out without being exercised. Nevertheless, many people prefer to work with such unstable instruments, since the constant change in their value makes it possible to implement various trading strategies based on technical, fundamental or system analysis.
The presence of a large number of various instruments allows you to arbitrarily choose strategies for buying or selling. In other words, on any trading day (or longer period) you can find a profitable idea. With sufficiently high liquidity, stocks and derivatives allow you to work with large amounts. However, as the amount of investments grows, the efficiency of active trading will decrease, since placing large orders will already begin to influence the course of trading, worsening the conditions for buying or selling an instrument. In this case, you will have to diversify the number of instruments in the portfolio so as not to become a hostage to any one security. Strictly speaking, activity can be a source of both large profits and losses. For example, the winner of the Best Private Investor» in 2017 increased its portfolio by 204.3%, making 8139 transactions. Meanwhile, the fourth-place finisher made just 50 trades and increased his portfolio by 101.07%.
Market size and style of work
The volume of the market is one of the basic concepts that determines the activity of the work. If the daily turnover of an instrument is several million rubles, then it will be very difficult to make many transactions with significant amounts of investments. Therefore, more experienced and wealthy clients drift towards the most liquid stocks, futures or options. In addition, the most active traders are found in the foreign exchange market, where there are a limited number of instruments, and liquidity is maintained by the entire global community. Trading volumes reach several trillion a day!
Are bonds boring?
Seasoned speculators from the people are often dismissive of the bond market, but this does not mean that this segment does not make a profit. Moreover, unlike the stock market, bonds actually guarantee a certain income, which is determined by the constant or floating coupon of the bond. Even if the price of the bond itself changes during the circulation period, the investor will still make a profit, unless, of course, the instrument defaults.
The bond market is very diverse . There are corporate bonds, municipal and government bonds. The volume of this segment of the financial market is very high. Suffice it to say that the average volume of placements in auctions of Russian federal loan bonds(OFZ) is 35-45 billion rubles. The daily turnover on the main section of the Moscow Exchange is far from boasting such a trading volume every session. Accordingly, such significant volumes and high guaranteed income attract large financial institutions, and large investors allocate significant portions of their portfolios to investments in bonds. By the way, the most capacious bond market is the US Treasury market. Therefore, the change in yields on it has the strongest impact on the state of the entire global market for financial instruments.
The stock market is not always able to beat the bond market in terms of yield. For example, if you had invested 1 million rubles in Russian OFZs at the end of 2014, then by the end of 2017, the income on such OFZs would have exceeded 45%. During this time, the MICEX Index rose from 1396.6 p. to 2109.7 p. That is, the stock market showed a higher profitability. However, we do not yet take into account the reinvestment of received OFZ income or dividends from shares. At the end of 2015, it was possible to buy OFZs with a yield of about 10.5%. Accordingly, in two years they brought income, excluding reinvestment of interest, about 21%. During this period, the MICEX Index rose from 1761.36 p. to 2109.7 p. That is, it showed a yield lower than the OFZ yield. In fact, that is why the growth of US Treasury yields has such a strong impact on the entire global financial market. If the dividend income of indices, coupled with the prospects for growth in corporate profits, declines, and Treasury yields rise, then large capitals begin to exit riskier financial instruments, flowing into safer bonds with guaranteed income. If there is a decrease in bond yields, it means that they are no longer satisfied with the “big” money, which begins to seek happiness in riskier instruments with more significant profit prospects.
In fact, for fairly passive investors, bonds are an excellent substitute for traditional bank deposits. If you still use an individual investment account , then there are significantly more advantages over bank investments. High-quality bonds bring income above deposits, can be cashed out at any arbitrary moment without loss of accumulated interest, and are not limited by the reliability of the sum insured on bank deposits. The only drawback is the need to spend on opening and maintaining a brokerage account more time than opening and maintaining bank deposits. However, the development of modern technologies already allows you to do this even without a visit to the office of a brokerage company. Moreover, if an investor has accumulated certain funds, then they require attention in any case, so a small investment of effort and time brings a noticeably greater income.