GETTING STARTED ON INVESTING
Have you ever dreamt of owning your own house? Have you ever wished you were driving a newer car? Have you ever worried about financing your kids’ education? If you have, then congratulations! You have just taken your first step towards understanding what investing is all about.
Although the word “investing” may sound intimidating to some, it actually refers to a process that is very personal and relevant to our lives. In order to achieve goals such as those mentioned above, we need to figure out how we are going finance them. That usually entails setting aside some of your funds. But we can’t just leave all our money in a savings account if we want to have enough in the future to pay for our financial goals. We want our savings to grow and that entails investing.
So, how do you go about investing?
Know Your Investment Objectives
The process of investing begins with articulating your financial goals. As with most things in life, knowing your objectives is essential since this will help you determine what you need to do. So ask yourself these questions: what are you investing for? Why are you investing? Be as concrete as possible. Quantify your goals: how much do I need to buy that dream house? Do I need regular cash inflows to sustain my living expenses? If so, how much? And, finally, situate your objectives in time: when will I need the money?
Understand Your Appetite for Risk
When it comes to money matters, most people have a natural aversion to risk. After all, most people define risk as the probability of incurring loss. The greater the risk, the greater the potential for loss.
But that is just one side of the coin. While risk can sometimes work against you, it can also work in your favor. In investing, the greater the risk, the greater the potential for gain.
Risk is present in any financial product, whether it be a simple time deposit or a complex financial derivative. It is only the degree of riskiness that differs. Whenever you invest, absorbing a certain amount of risk is unavoidable and, in some cases, even necessary especially if you want to achieve your financial goals. What’s important is that you understand the risk that you are taking and are both comfortable and capable of taking it.
Find out what your risk appetite is by taking our Suitability Test.
Read more about risk
Choose Your Investments
Once you know what your investment objectives are and your appetite for risk is, the next logical step is to determine where to invest your money. You have three options at this point:
You could select your own investment instruments. This, of course, would require time and knowledge on your part on where to invest. This entails access to information about investing and investments as well as ability on your part to implement your investment strategies. Some people love the thrill of managing their own funds. But most would not have the time and expertise to do this.
You could hire a personal portfolio manager. Most banks offer personal investment managers who will tailor-fit an investment portfolio to suit your particular objectives. However, for this type of customized service, a high initial investment amount is normally required.
You could participate in a pooled fund. For retail investors, participating in a pooled investment fund such as a mutual or unit investment trust fund could be the best option. Pooled investment funds normally require a low initial investment and provide you with instant access to a diversified portfolio of investment instruments. Since you buy shares or units in the pooled fund at a particular price which changes daily depending on the performance of the investments, it is also very easy to determine just how much money you are earning and how well the investment is performing. (Read more about how a mutual fund works)
Monitor the Performance of Your Investments
Finally, it is important to regularly monitor how your chosen investments are performing. Are they making money? Are they bringing you closer to your investment goals? Are you still comfortable with the risk you are taking? Has your financial situation changed significantly enough to warrant a change in strategy? These are some of the important questions you will need to answer to evaluate your investment strategy.