Ease Into the World of Investing

Ease Into the World of Investing

The United Nations does. Governments do. Companies do. Fund managers do. Millions of ordinary workers do this, from business owners to factory workers. Housewives do. Even farmers and children do it.

Ease Into the World of Investing
Ease Into the World of Investing

‘It’ invests here: the science and art of creating, protecting and enhancing your wealth in financial markets. This article introduces some of the top concerns in the investment world.

Let’s start with your goals. While the obvious goal is to make more money, there are 3 specific reasons institutions, professionals, and retail investors (people like you and me) invest:

Ease Into the World of Investing

Investments are often structured to focus on one or the other of these goals, and investment professionals (like fund managers) spend a lot of time balancing these competing goals. With a little training and time, you can do pretty much the same thing yourself.

One of the first questions to ask yourself is how much risk you are comfortable with. To put it more precisely: How much money are you prepared to lose? Your risk tolerance level depends on your personality, experiences, number of dependents, age, level of financial knowledge, and many other factors. Investment advisors measure your risk tolerance level (explained below) so they can categorize you according to your risk profile (for example, ‘Conservative’, ‘Moderate’, ‘Aggressive’) and recommend the appropriate investment portfolio.

Ease Into the World of Investing

However, it is also essential for you to understand your personal risk tolerance level, especially when it comes to something as important as your own money. No one can guarantee that you will make a profit; even the most sensible investment decisions can turn against you; There are always ‘good years’ and ‘bad years’. You may lose some or all of your investment, so always only invest as much as you are prepared to lose.

At some point you will want to withdraw some or all of your mutual funds. When is this point likely: in 1 year, 5 years, 10 years or 25 years? Obviously, at this point you will want an investment that allows you to withdraw at least some of your funds. Your investment time frame—short-term, medium-term, or long-term—usually determines what investments you can make and what kind of returns you can expect.

All investments involve some degree of risk. One of the ‘golden rules’ of investing is that reward is about risk: the higher the reward you want, the higher the risk you have to take. Different investments can come with very different levels of risk (and associated rewards); It is important that you appreciate the risks associated with any investment you plan to make.

Ease Into the World of Investing
Ease Into the World of Investing

Ease Into the World of Investing

There is no such thing as a risk-free investment, and your bank deposits are no exception. Firstly, Singapore bank deposits are rightly considered very safe, while banks in other countries have failed before and continue to fail. More importantly, the peak interest rate up to $10,000 for Singapore dollar deposits in 2010 was 0.375%, while the average inflation rate from January to November 2010 was 2.66%.

There are many types of investments (‘asset classes’) available today. You may already know some of them, such as bank deposits, stocks (shares), and unit trusts, but there are a few more that you should know. Some of the most common are:

Bank Deposit
Investment Linked Product1
Unit Trusts2

The main advantage of ILPs is that they offer life insurance.

2 Unit Trust is a pool of money that is professionally managed according to a specific, long-term management objective (for example, a unit trust may invest in well-known companies all over the world to try to achieve a balance of high returns and diversity). The main advantage of unit trusts is that you do not have to pay broker commissions.

3 An ETF or ETF comes in many different forms: for example, there are stock ETFs that hold or track the performance of a basket of stocks (eg Singapore, emerging economies); commodity ETFs that hold or track the price of a single commodity or basket of commodities (eg Silver, metals); and currency ETFs that track a major currency or currency basket (for example, the Euro). ETFs offer two main advantages: they trade like stocks (on exchanges like SGX) and often come with very low management fees.

The main difference between ETFs and Unit Trusts is that ETFs are publicly traded assets while Unit Trusts are privately traded assets, meaning you can buy and sell them whenever you want during market hours.

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