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Investments
- Are They For You ?
By
: Joe Daly,
Daly Investment Planning Ltd,
Ballinrobe,
Co Mayo. ( 094 952-0921) or e-mail: info@dip.ie).
Successful
professional investors are like successful generals: they have
realistic objectives and a clear strategy. Private investors need
investment strategies/financial goals too. But first you have to consider what
your objectives are.
Accessibility.
What does this mean?
An example of this is : can I get at my monies if I need a new
car or have to pay college fees?When you are considering which
investment type is best for you, one of the first questions you
should ask yourself is when will I need it? Do I need it all now
or can I invest some longer term to achieve a better return?
Some investments such as deposits may require a minimum notice
of one month or more while deposit Trackers may be for a period
of 5 years or more. Other investments can be for periods in between
or over a longer period.
It is important to be aware that a deposit may incur a penalty
for early encashment therefore careful consideration should be
given regarding the accessibility of your investment.
RISK/REWARD?
What does this mean?
History has proven that over the longer term real
assets such as stocks and shares and property or any combination of these will outperform fixed income
assets like cash. So why does everyone not simply invest in those
assets which provide higher returns?
The answer is risk.
Although stocks and shares and many investment products are linked
to their performance (including mutual funds, unit trusts and life
assurance policies to name but a few) generally outperform over
the longer term they fluctuate in value and you can get back less
than you invest, particularly over the short term.
When you are choosing an investment it is important to choose one that
is suitable to you, for example a young persons risk profile may
be far greater than that of an older investor.
There are other factors of risk, which people often forget to take into
consideration such as:
1. Risk against inflation. Investors should always be looking
to achieve a greater return than inflation or the cost of living.
If you are not achieving this then the value of your capital will
be falling. For example €50,000 would have bought a fine
house 10 years ago. What would it buy today even after the decline in values?
2. Risk of non performance If the interest / return on the investment
is not guaranteed then there could well be a situation that your
investment will not reach your expectations and so disappoint
you.
3. Risk of capital loss. Sometimes a degree of capital security
must be foregone in order to achieve the best returns.
4. Currency exposure where the asset you own is not in Euro.
The
general rule of thumb when it comes to examining risk versus reward
is that the greater the risk taken the greater the potential reward
to you.
The important point is that you must balance your risk
and reward requirements and find the product that most closely
matches your needs not forgetting that investment money can be
split between different risk rated products and funds to achieve your target return.
Ask yourself: "What
risk am I willing to take with some of my funds to achieve a better
return and over what time span can I invest?"
Most investment strategies would recommend that a person invest
some monies where an element of risk exists (but potentially a
better return) and also investing in a low risk investment.
This
is called diversifying your portfolio and offsets some of the
risks outlined above.
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