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.