Introduction
Many of us lack the discipline to do savings. If you have some savings, you may want to invest them to maximise your return (eg. invest in unit trust). Investment is part of your overall financial planning. There are some guidance on the factors to consider before investing as well as the do's and don'ts when investing.
Difference Between Investment & Savings
Doing investment is very much different from savings. In savings,you will generally get back your money, plus some interest. However, in an investment, you may or may not get back the sum of money invested. In some cases, you may get much more than the initial amount invested. The potentially higher return is to compensate you for the higher risks undertaken by you.
Planning Your Investments
A smart investments are not a matter of luck, but a result of careful planning and timely decision. When you invest, you should not rely on hearsay. You must spend some time to understand the market, either through research or seeking out expert advice.
Below are some of the issues you should be aware:
Step 1 – Know why you want to invest
Before you invest, you should know the purpose of your investment, that is your financial objectives. Your financial objectives may be to:
- Send your children for higher education
- Plan for a comfortable retirement in the future
- Maintain the purchasing power of the principal amount invested
- Obtain income from your investments
- Grow your net worth
Step 2 – Know the key issues to consider when investing
As investments are long-term commitments, and you must consider your ability to invest before you commit yourself. Among the key issues to consider are:
- How much money do you have for a medium to long-term commitment?
- Do you fully understand the product that you are investing in?
- Does the intended investment fit into your overall portfolio?
- Have you compared returns on other similar investments?
- Do you understand the risks involved and do you know your tolerance level for loss? (i.e. how much changes in the price/value of your investments can you tolerate)
- What are your expectations towards returns on your investments? (i.e. how much returns will you be satisfied with)
- What is your time horizon for the investment? (eg. 5 years, 10 years, etc.)
- Do you have the flexibility to sell the investment in the event of emergency?
- How can you monitor the performance of your investments against your changing needs?
- Diversification
- Time Value of Money
http://www.youtube.com/watch?v=8QvW1XETz2g&feature=PlayList&p=2C475FE80C6D8054&playnext_from=PL&playnext=1&index=1
- Impact of Inflation and Taxes
- Maximising Returns
options that pay a higher rate of return. Click on the link below to see some presentation on "Rule 72"
http://www.youtube.com/watch?v=oEbik_2JisQ
- Ringgit Cost Averaging
- Risk-Return Relationship
which promise higher returns (e.g. equity unit trust or shares) will also have higher risks. As a result of the risk return trade-off, you have to consider the level of risk associated with different types of assets and choose the appropriate asset to invest.
- Understanding Risk
be lower.
Step 4 – Know which investments are appropriate for you
Before you select any investment product, it is important that you understand how it works. Each asset is unique and has a different risk-return profile which you can invest in to realise different financial goals. However, it is important to realise that negative return is possible for most investment types.
Conclusion
One should not enter into any investment decision in a hasty manner. A smart investor must proactively seek information on the various investment options available. He or she must also be sensitive to the prevailing investment climate and market conditions. Investors must always remember to exercise prudence when it comes to making an investment choice and decision.
Note:
If you wish to start an investment in unit trust (eg. Public Mutual) or start a stock trading online with Bursa Malaysia, contact me (Jeffry) at 016-2154532.