Investment Fundas FAQ

What affects the value of money ?

Inflation - As we all know money starts to lose its value as time goes by. This is due to a phenomenon called inflation which is a measure of the rate at which prices of goods and services increase. When positive, inflation indicates that money is losing its value. Simply put, the money you earn today will be worth less 10 years from now.

Interest rate fluctuations - A drop in interest rates means a smaller return on your deposits, and if the interest rate is lower than the rate of inflation, your savings lose value. But for some investments, such as equities and bonds, the value of your investment may rise because of the drop in interest rates.

International economic trends - What happens in other economies can affect the value of your money. Political circumstances, GDP growth, and stock-market indices in other countries can all have an impact on the buying power of your money.

With so many factors involved, it is crucial that you have a financial plan to protect your future and to put your money where it generates reasonable returns to meet your needs.

When should I start planning for the future ?

The sooner you start the better. The example below shows the difference in accumulative savings between Mr Early and Mr Late, who start saving at different times. Mr Early saves for 10 years and then stops. Mr Late starts 10 years later and saves for 20 years. But Mr Early still gets 87% more than Mr Late (based upon 10% annual growth, not taking into account annual inflation). The table below demonstrates this:

Year Mr. Early Saving Accumulation Mr. LateSaving Accumulation

1

1000

1,100

0

0

2

1000

2,310

0

0

3

1000

3,641

0

0

4

1000

5,105

0

0

5

1000

6,716

0

0

6

1000

8,487

0

0

7

1000

10,436

0

0

8

1000

12,579

0

0

9

1000

14,937

0

0

10

1000

17,531

0

0

11

0

19,284

1000

1,100

12

0

21,213

1000

2,310

13

0

23,334

1000

3,641

14

0

25,667

1000

5,105

15

0

28,234

1000

6,716

16

0

31,058

1000

8,487

17

0

34,163

1000

10,436

18

0

37,580

1000

12,579

19

0

41,338

1000

14,937

20

0

45,471

1000

17,531

21

0

50,018

1000

20,384

22

0

55,020

1000

23,523

23

0

60,522

1000

26,975

24

0

66,575

1000

30,772

25

0

73,232

1000

34,950

26

0

80,555

1000

39,545

27

0

88,611

1000

44,599

28

0

97,472

1000

50,159

29

0

107,219

1000

56,275

30

0

117,941

1000

63,002

Invest early and invest regularly to master your financial future.

Guidelines to follow for making wise investments:

  • Set your objectives
  • Do your homework before investing. It is risky to rely on pure luck when making an investment.
  • Ask yourself whether you want to invest or speculate. For investment, make sure you have a cut-off point in mind to protect your bottom line. In the case of speculation, don't make investment decisions out of panic when the market becomes volatile.
  • Invest as much as you can afford, but no more.
  • Don't leave money lying around in non-interest bearing accounts except as stand-by cash. Make sure your investment portfolio gives you a big enough return to beat inflation.
  • Always use a reputable investment firm or financial institution.
  • Diversify. Invest internationally and spread your investments over a range of low, medium and high-risk products in order to hedge against losses.
  • Make sure you understand exactly what risks are involved with every investment you make. If in doubt, seek professional advice.
  • Keep an eye on your investments. Take opportunities and shift products if it is beneficial to do so.

 

I know how much I have to invest, now what ?

Set your objectives. Your objectives could incorporate any combination of the following:

  • Retirement Planning
  • Protection for your family
  • Education for your children
  • Special needs or emergencies
  • Specific occasions (e.g. a wedding, buying a house, emigrating)
  • Wealth accrual

Now make a list of your objectives, in order of priority, because you may not be able to afford to achieve every single goal. Divide your objectives also into long, medium and short-term goals. This will help you choose the type of investment you want to make. For example, if you plan to send your children to study abroad in three years' time and you need to save for their tuition fees and living expenses, you'll need a fairly low-risk investment. Think about when you will need the return as it also helps to determine the time horizon of your investment. You can calculate how much you need to reach your objectives, taking into account projected interest rates and inflation.

How do I determine my risk level ?

With your objectives in mind, determine how much risk you're prepared to take. Do you want to adopt a conservative, moderate or aggressive investment strategy? Ask yourself the following questions before you make your decision:

Are you prepared to make long-term investments, which will allow you to take greater risks for higher returns ?

  • If you're going for short-term, high-risk investments, can you afford to lose some of the money you invest ?
  • If you're married with children, what level of risk can you take and still be certain of their future ?
  • You're going to diversify by spreading your investments over a range of low- to high-risk products. But will you weigh them towards high- or low-risk investments ?
  • If you want your money to be safe, will you be content with a moderate rate of return ?
  • If you opt for safe investments, will the returns be enough to cover inflation ?

 

How can I research and keep track of my investments ?

Stock prices and Mutual Fund prices are quoted in the newspapers and on the Internet. They are also available on websites of most Mutual Funds and research agencies. In order to maximize the money you invest, it is necessary to review your investment portfolio on a regular basis. You may want to re-look at your investments to account for changing goals, fresh investment avenues, changing market dynamics etc. It is possible that some investments you are holding are not performing to your expectations. If that is the case, you may consider revising your portfolio.

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