Mutual Funds 101November 16, 2020
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Many individuals face a mental block as it relates to placing their monies in financial securities due to a lack of understanding, risk of losing money, and sometimes due to behavioural biases.
Before investing, one must consider their current financial situation, their level of understanding of investment products as well their financial goals. What most persons do not recognize, is that they already partake in some of these investment products when they place their funds in a Fixed Deposit, Fixed-priced mutual fund, contribute towards an employment pension plan, or even when they buy life insurance.
All of these monies are in some way invested to earn a return for you, the clients. The best way to understand how these monies are invested and how you can invest to earn a return for yourself is to speak to a financial advisor. The right time to speak to a financial advisor is always now. Through proper guidance, coaching and knowledge transfer, you will be able to feel more confident about securing your financial future. Consider these things when you speak to a financial advisor.
1) Time horizonThis simply represents the time frame in which you wish to be invested. This can range from short term; typically less than 1 year to 3 years, medium term; 5 to 7 years or long term which is usually longer than 7 years.
2) Return ObjectiveThis means, what you expect in return for investing your funds. Again this can range from a fraction of percentage to 5% or even 10%. A return objective can be relative, absolute or can simply be capital preservation.
3) Risk ObjectiveNo reward comes without risk. You must understand your ability to take risk (which comes from your level of wealth) and your willingness to take risks which is generally a personal preference.
4) LiquidityClients must be mindful of their spending needs regarding the amount and timing of these. This information is useful for the advisor so they can work with you to ensure your liquidity needs are met.
Other factors that you must consider before investing include tax and legal considerations as well as any unique circumstances you believe can affect your investments, for example exposure to a concentrated position, recent receipt of cash lump sums etc.
Prepared by: Keshala Mahabir
Wealth Management Associate
Maritime Capital Limited