Investment Knowledge Power Up

There is a BIG difference between savings and investing.

People save in order to preserve their money. While in investing, you expect to accumulate and grow your money.

Have you ever asked yourself ?

  • Am I doing a good job investing my money ?
  • How do I know whether I make profit or lose money ?
  • Which investments are suitable for me ?
  • Will I lose my capital ?
  • Where can I invest ?

Know what you own, and know why you own it. ~ Peter Lynch

Let start by understand the types of money you have.

4 Types of Money

Serious Money

Money cannot afford to lose, safety of capital is very important (1st priority) ; gain/interest is secondary. These are money reserved for old age retirement, medical emergency, children education.

Borrowed Money

Money borrowed from banks, financial institution for consumption purpose, for own use. These are money borrowed from bank to buy own home or car.Money not for gain or return. Pay back principal and interest.

Leverage Money

Money borrowed from banks, financial institution for investment purpose. These are money lent from bank to invest in share financing, buying property.Money is intended to make gain or return. Pay back principal and interest.

Idle Money

These are money kept in the savings account, Fixed Deposit which earns little interest.Beside leverage money, idle money can be considered for investment for better return.

5 steps to investing success

Step 1. Set up your financial goals

Set specific and realistic goals. This explain the intention & purposes of your investment objectives. You can have multiple investment goals for different purpose.

For example- you may set specific goals like :

  • invest to build your children education fund of 300,000 in 8 years’ time and also;
  • invest to accumulate your savings of 1,000,000 by the time you reach age 60.

Step 2. Know your personality, risk tolerance

If you have an adventurous lifestyle and enjoy the thrill of rock climbing, sky diving or motor car racing, it does not mean you are aggressive investor and can tolerate high risk.

So the better way is to assess your investment personality and understand your risk tolerance.

Step 3. Develop your investment strategy

Create an investment policy statement to guide your investment decisions. Take into consideration these factors when design your investment statement.
  • sum of your seed capital
  • realistic amount you can save each month
  • short term financial obligations
  • state of your financial balance sheet
  • duration of your plan
Your investment policy statement will outline rules you are comfortable with your portfolio. Listed here are the typical scopes covered in a investment policy statement:
  • your investment goals and objectives,
  • strategies that will help you meet your objectives
  • your return expectations and time horizon
  • your investment personality and risk profiling
  • guidelines on the types of investments that make up your portfolio
  • how accessible your investment money
  • how your portfolios are monitored, and situation when rebalancing will be activated

Step 4. Select your investment asset classes

Asset classes refer to different types of investments. The return and the level of risk is different with each asset class.

There are four main broad category asset classes a traditional investor will invest in – cash, fixed, interest, real estate and shares equity. For more sophisticated investor, alternative investments like currencies, commodities or options may be included.

Step 5. Track your investment progress

Check your investment regularly so you know how much you have earned towards your goals.

Likewise, you can monitor the costs and fees charged as well. One way to track your progress is to measure against the investment benchmark.

Are your portfolio perform on par, above par or under perform ? Refer to your investment policy statement and see if portfolio rebalancing is required.
Find out your investment asset classes here

Investing Dos and Don’ts

1. Do Not over borrow to invest.
2. Do Not invest all your money in one assets
3. Do Not invest money you need soon.
4. Do Not get emotional and panic.
5. Do keep investing and stay invested.
6. Do diversify your assets.
7. Do seek professional opinion.
8. Do give your investment time to grow

Many successful investors follow this golden rule : Never invest in something you don’t understand.  Always read an investment’s prospectus investment and how it will help you make money, ask a trusted financial professional for help.  If you are still confused, you should think twice about investing.
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