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Pa, I heard some news at the coffee shop. They say ABC's stock price will rise soon! Perhaps it's a good time for you to invest? |
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Son, we should adopt a long-term view for investment. Market timing is not a safe way to invest. Besides, market talk is seldom true. There are many factors to consider before making an investment. |
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Investments? That's too risky! Better to keep cash, like what I do. Having your money close to you is always the safest bet. |
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No, Pa, investing prudently is necessary in order for our money to grow. Our purchasing power will be eroded over the years due to inflation if we do not grow our money through careful investments. |
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Why invest?
Can't we keep our money in a biscuit tin?
People often view investments as being very risky. In fact, investing is all about maximizing the returns on your savings using various kinds of financial instruments. Some of the more common types of investments are:
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• Fixed Income Securities (Bonds)
These are debt instruments issued by either the Government or corporations to raise funds. Investors (lenders) are usually repaid the original investment amount at maturity. When you hold a fixed income security, you will also
receive interest (or coupon payments) periodically.
• Equity Investments (Stocks or Shares)
Equity is a form of ownership in a corporation. An investor's stake in the corporation depends on the number of shares he owns as a percentage of the total number of shares issued by the corporation. Shareholders have the opportunity to benefit from capital appreciation of the shares and may receive dividends.
• Unit Trusts
A unit trust is an investment fund managed by a professional investment manager. It consists of investments in one or more of the three basic asset classes - cash, bonds and stocks.
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Why invest?
Can't we keep our money in a biscuit tin?
• Investment-Linked Insurance Plans
An Investment-Linked Insurance Plan (ILP) is an investment fund managed by a professional fund manager, which has an added insurance component. Similar to unit trusts, ILP offers different investment objectives to suit the risk appetite of policyholders.
BASICS OF INVESTING
- Identify your investment objectives and time horizon.
- Consider the risks you can bear and your expected returns.
- Decide on an appropriate asset allocation. This means how you allocate your savings among various asset classes including property, stocks, bonds and cash.
- Consider how you can diversify your investments.
- Conduct your own research to choose the right professionals who can help you with your investment.
- Consider the transaction costs of your intended investments.
- Monitor your investments closely and review your investment objectives periodically.
More information on investments can be found in the MoneySENSE Guide "Introduction to personal investing" (PDF, 3.06MB)
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