Preparing
your investment
 If you are thinking about investing be sure
to evaluate first your personal financial circumstances.
Your assets, income, liabilities and expenses all need to
be taken into account so you may be able to ascertain your
readiness to invest. If you commit to an investment only
to withdraw from it early, not only will you be depriving
yourself of any potential gains, you may also end up with
less than you started. Obtain advice from an IFA (Independent
Financial Advisor) before making your final decision.
Never
forget that investing is inherently risky, especially compared
to opening a basic savings account. By making an investment,
whether through an investment trust or by directly buying
stocks and shares, there is always a chance of not recovering
the
money you initially put out. However this risk is also balanced
by the potential long-term returns you can gain.
Some Tips
- Know your liabilities
If, for example, you are currently in debt, you should
consider the fact that investments are usually long term
plans that
cannot realise any significant gains if withdrawn from
early on. In other words, a high-risk investment is not
an ideal
option for dealing with immediate debt.
- Prepare your savings first
Before you can determine how much capital you have for
investing, you need to allocate some money for emergencies
first. You
can use the money that you have left over after that.
This way, even if you run into unscheduled expenses down
the
road, you have money to answer for it without having
to withdraw
the capital you have invested.
- Prepare to absorb any losses
If you are to be able to invest comfortably, you need to
be prepared to deal with the possibility of incurring
losses. While any investment should be made with the
clear goal
of gaining profit, your financial situation should
not be overturned
in the event that your investment ends in losses
since this could lead to even further expenses if you are
caught unprepared.
- Do your research
There are a number of sources you can turn to for current
financial news that should inform whatever decision
you make. By consulting
online and print publications that specialise in
financial matters you will also get a good overview of
available
investment options. It is important to take note
of the current state
of the market and how different sectors are performing.
Make sure to obtain your research from a variety
of sources, to
reduce any bias from relying on just a single source
of news and information.
Unit Trusts
Essentially a shared investment
fund, a unit trust is considered as an “open-ended” fund.
In other words, the fund expands as more people invest
more money in it. Conversely
the available capital decreases when investors
withdraw what they have put in.
A Fund Manager handles the
unit trust, making all the investment-related decisions
on behalf
of the
investors.
The fund is made up of segments known as “units”.
Investors purchase units in order to gain a
stake in the trust. Units come in different prices depending
on the value of the
investments made by the trust.
Charges
- There is an initial charge when
buying into a unit trust fund. After paying the initial
charge, the difference between the
prices at which you buy and
sell units is termed as the “spread”.
- Instead
of initial charges, some unit trusts will require you
to pay an exit charge when you sell the unit.
- Normally
the provider of the unit trust will charge an annual
fee that is directly taken from the investment
fund.It is important to know the charges
that a unit trust
will cost you before
deciding to invest, as
the charges have a significant bearing on the investment’s
overall performance.
Once
you have made your decision on which unit trust to buy
into, you can purchase
directly
from the company
managing
the trust or you can also opt to buy through
a stockbroker, an
investment manager, or an independent financial
advisor.
Open-Ended Investment Companies
Open-ended investment
companies, or OEICs, are companies that handle investment
funds. OEICs
offer stakes
in the investment fund to the public
through shares that
you
can purchase.
Comparable
to a unit trust, the investment value
increases and decreases as people buy and sell back
their shares
to the company.
The current market value of the investments
made by the company reflect the prices
of the shares
that they
sell.
Unlike unit trusts, OEIC shares
are usually bought and sold at the same
price. An
initial charge
often applies
when buying
and selling OEIC shares, although
some OEICs charge an exit fee instead when
shares are
sold back to
the company.
Investment Trusts
An investment trust is a company
that profits by investing in
the shares
of other companies.
By
purchasing shares
in an investment trust, you lower
the level of risk inherently
involved in investing since your money is
divided
into different investments,
looked after by a professional
fund manager. This also allows you to
gain exposure
to a wide range
of investments
with
a minimal amount of money. |
