Friday, March 22

Investing with the big picture in mind

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YOU don’t have to be an expert to get started, but it helps to know the basics before you set a plan for investing. Since the whole idea of investing can be overwhelming and intimidating for anyone who has never done it, try taking small steps.

Here are some basic Do’s

•Do:

•Get some financial education.

•Invest some time, then money.

•Read books and newspapers.

Attend seminars.

Get together with other like-minded people to learn about investment choices including the stock market, property or even a business.

You might also consider hiring a professional, like a financial planner to go through your current financial situation and goals, and work out a detailed financial plan for you. Besides giving you a professional perspective of your financial health, a good financial planner will know the kind of products in the market that will suit you.

But professional help doesn’t come cheap. So the best option would be to get a recommendation from neutral or independent sources such as the Financial Planning Association of Malaysia (FPAM) or the Securities Commission Malaysia before settling on a planner.

Always remember the three important principles of investing:

1. Investment Goals

What is the purpose of your investment? Is it to achieve high dividend yields or a consistent income yield? Once you’ve determined your short-term and long-term objectives, you can identify suitable investments, the level of risk you can tolerate, and what your expectations are.

2. Know your risk tolerance

High returns come with equally high risk. Realise your ability and willingness to lose some or all of your original investment in exchange for greater potential returns.

If you’re an aggressive investor, or one with a high-risk tolerance, a well-diversified equity fund should take up the majority of your portfolio. If you can take on only a moderate degree of risk, then perhaps a hybrid investment plan such as a 50:50 investment portfolio in a moderate risk fund with significant cash savings in a bank account is your calling.

3. Time horizon

Decide on how long you intend to invest and what stage of your life you’re at. If you are saving up for your daughter’s education in which you will need it in the near future such as within five years, then, you would likely to take on less risk because of a shorter time horizon. Also, maintain at least six month’s income in an easily accessible deposit account or put your money in liquid investments such as unit trust funds. This will allow you to have access to your money in the event of emergencies.

Here are two examples* to give you a general idea:

Scenario 1:

Sharon decides to start investing a sum of RM500 monthly, in an investment vehicle that will yield her an average of eight per cent per annum over the next 30 years till retirement. At the end of 30 years, the total sum of her investment would have amounted to RM750,000.

Scenario 2:

If Sharon decides to start investing five years later, a sum of RM500 monthly, in a similar investment vehicle that will yield her an average of eight per cent per annum over a period of 25 years till retirement, her total nest egg would have only amounted to RM478,000 due to the loss of an additional five years in compounded growth.

* Source: Investment Calculator from HwangDBS Investment Management corporate website www.hdbsim.com.my/tools/general-investment

This article is brought to you by HwangDBS Investment Management, your Asian Financial Specialists; we believe you deserve to live the life you want. Log on to http://www.hdbsim.com.my or call 1-800-88-7080 to find out how.