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Basics of Investing

Investing involves committing money in order to earn a financial return. This essentially means that you invest money to reap profits or benefits and to achieve your financial goals.

Regardless of where you invest your money, you are essentially entrusting your fund to a registered company or entity in the hope they provide you with more money in the future. Savings accounts are typically seen as low risk. They are appropriate for holding your emergency fund, money for rainy days, rent or other expenses. Investing is much more suited to money you do not need in the short term, for example your retirement savings, or a fund for your child’s university education. There may be certain risks associated with different types of investment. This is why it is important to know

When, where and how to invest
Whether your investment will generate enough yield to match your day to day expenses
That high amount of risk in investments can bring higher returns.

Before you start investing in anything, you should ask yourself some important questions. These questions determine whether your financial situation is good enough for you to start investing.

Question and Answers

Do you have a lot of debt?

If the answer is yes, you may not be in a position to invest. First, you should do everything you can to pay off your debt. Then you should consider investing your money based on the savings you have.

Do you have an emergency fund?

Any wise financial advisor will suggest that you have between six months and a year of total living expenses in cash, or in a savings account that could be used as an emergency fund if required. Ensure that you have enough savings for emergencies before investing.

Most commonly used types of investment

Stocks

A small share of a company that anyone can buy. Stocks are volatile and while you could reap a lot, you could also lose a lot. When you pick individual stocks you lack diversification. You can invest through an investment dealer Stocks are often a large part of managed portfolios.

Real Estate

Involves purchasing real estate such as apartments, land or houses. There can be a high barrier to entry as property is expensive. You can invest directly from a property owner or a broker.

Bonds

A bond is kind of loan with interest. They are often issued by governments. Interest rates normally exceed the interest rate of banks however you do assume more risk than a standard savings account. You have all your eggs in one basket if you only invest in bonds. They can be purchased directly through the government, or a brokerage or trading platform. They are often included in managed portfolios too.

Diversify your investments

When you diversify your investments, you ensure that if one part of your investment does not do well, you have not lost everything. Diversifying your portfolio means investing in different sectors or asset classes (stocks, bonds, real estate etc.).

Things to consider before investing

Ensure that the entity in which you are investing in has a licence to operate with the relevant regulators (e.g. the FSC or BoM). In that way, you might avoid being a victim of a financial scam.

Be aware of the different costs and procedures involved before investing in the scheme.

Make sure that your investment will provide you a return.

Understand the terms of use and the different risks involved.

Before investing, make sure to read all legal documents (e.g. contracts) and marketing materials and the contract or legal documents carefully and understand them.

Always keep track of your investments.

Ensure that you receive reports of your investment regularly, especially if a company is managing your investment portfolio.

Learn more about investments

Learn About Saving

Today’s youth appear to be relatively savvy about money while some still consider that money management is not important.

Keep track on Expenditures

Good financial planning begins with a good household budget. Creating a budget helps you to keep track of where your money is going each month and also allows you to develop a plan for saving.

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