How to avoid savings and investing blunders
One of the biggest financial mistakes you can make is to lack clarity in your savings and investing decisions. The current financial news shows what can occur when poor decisions are made. Yet, many investors remain blissfully unaware of the consequences they face from similarly bad decisions that have not generated dramatic headlines. Here are some good tips on how to approach investing.
Get Advice from Professionals
Consulting an investment advisor can help you fully understand the various financial options available and guide you along the financial path best suited to achieve your goals, your tolerance for risk and your time horizons. Investment advisors are knowledgeable professionals. They are often privy to information of which you may be unaware.
Determine for how long you can invest
Clearly determine your short, medium and long term goals. This will guide your decisions as to the duration of the investments which you select. Some options may require commitments for as little as 30 days, others for as long as several years. It is important that you consider the periods for which you wish to invest your funds and the returns you expect on your investments. Be sure to consider all the conditions associated with each product you choose. Ensure you have selected a good fit.
It is generally acknowledged that for longer-term objectives, funds are better invested rather than saved. This usually produces higher returns which compensate for considerations such as inflation and currency depreciation. For the period 1997-2007, inflation in Jamaica averaged 10.5 per cent per year. For the same period, the Jamaican dollar depreciated approximately 6.5 per cent each year.
To receive higher returns, an investor often has to take on greater risk. That risk may be lowered by diversifying the contents of the investment portfolio. But you should diversify with care and with the help of a professional, for It is in attempting to diversify that many commit costly financial mistakes.
Ultimately, different people have varying tolerance levels for risk and their tolerance levels can change based on experience and their changing circumstances.
Opportunities are abound and out there, but ensure that you can sleep at night with the financial decisions you make.
The author is financial advisor JN Fund Managers Limited. He can be contacted at: Jerrold@jnbs.com
Last updated: October 22, 2008
© Copyright Jamaica Gleaner