Investing for beginners: All you need to know
A lot of us are simply scared to put our money beyond our bank account. And for the most part, we have every reason to feel that way. One of the biggest myths about investing is that you have to be a super-smart, stock picker to make money. But investing is not just about stock trading – it involves other asset classes such as bonds, cash funds, real estate and commodities. Here are a few practical strategies that can be followed to make your money work for you as you seek to invest.
Do the math
When it comes to investing, it's all about understanding your current financial situation, your goals, and your risk tolerance. These three factors act as a guideline while establishing your financial goals and the type of investments you need to be making to achieve that goal.
One of the main reasons new investors lose money is because they chase after unrealistic rates of return on their investments. When setting expectations for any investment, be realistic about the type of returns you expect. Past performance only provides an indicator of historical returns.
Information is power
Collecting as much information as possible about a potential investment empowers you. It gives you an extra edge when making decisions. Ask lots of questions to make sure that you have all the relevant information, and understand it, before making any decision. Your investment needs to match your investment goal, and you need to have a clear understanding of the risks associated.
Have a plan
Choose individual investments that fit into this strategy – this is better than making investments on an ad hoc basis, or by reacting to market conditions. Given the variety of investment options available today, it’s important to seek guidance from a financial adviser. National Bank of Fujairah has tailored investment solutions with monthly savings as low as $1,000 that is relevant and personalised. NBF understands that each investor's goals are unique and proper guidance toward the most suitable products is essential.
When you’re comfortable with your plan, match your investments to your time horizon. The longer the time horizon, the more risk you can take. For long-term goals such as retirement or children’s education, consider equity funds, which even though volatile in the short term, are more likely to give you the growth you are looking for. Similarly for short-term goals, look at money market, or cash funds as they tend to be more stable and predictable.
Understand risk and return
You should be aware of the relationship between risk and expected returns. Higher expected returns are generally associated with a higher degree of risk. Hence, return expectations should be in line with the level of risk taken. For example, equity funds have the ability to provide good returns over the long term, but are subject to much wider fluctuations. There is no point investing your money in equities and getting sleepless nights due to short-term volatility.
Simply put, diversifying is the process of spreading your money across a wide range of investments, (different asset classes) this can be stocks, bonds, real estate, across multiple geographies. Portfolio diversification may reduce the amount of volatility you experience by simultaneously spreading market risk across many different asset classes. One of the best ways of achieving this, is to invest multi asset fund portfolios. NBF offers a comprehensive and collaborative approach focused on understanding your risk appetite and ensuring the right portfolio (conservative, moderate and aggressive) is selected for you. The bank also collaborates with MorningStar, an independent and expert investment research firm, to construct and dynamically manage the portfolios.
There is no right time
Common wisdom today tells us that timing the market doesn’t work. Investing is not a 100-metre dash, it’s a marathon run. When the markets are low, you buy more and when the market rises, you buy less. This disciplined investment approach is a successful way of building wealth. A key differentiator for NBF’s investment products is that investors can choose to exit the investment on a weekly basis due to the transparent fee structure and the absence of lock-up and redemption penalties.
Keeping emotions at bay
Emotions tend to overwhelm us whenever there is a significant shift in market conditions or when faced with unforeseen circumstances, be it good or bad. A well-allocated portfolio alleviates the need to constantly adjust investment positions to chase market trends, and can help reduce the urge to buy or sell in response to the market’s short-term ups and downs.
Speak to a financial adviser
If you aren't sure what to do, or you find yourself unable to make a decision, hire someone to help you. For example, there are some good financial professionals at National Bank of Fujairah that are capable of helping you work through some of these tough decisions. Don't be afraid to ask for assistance in a difficult market.