Investment Tutorial
Why you should not stop contribution or surrender your policy immediately after lCP?
When you invest in investment-linked products, time is a very important factor you should consider. To cover the expenses of insurance company, the costs are heavily weight at the beginning of the plan. Moreover, insurance company charges a very high encashment charges if you surrender your plan in the early stage. To fully enjoy the benefits of investment-linked plan, you should continue, but not stop contribution or surrender, your policy immediately after lCP.
Can you make money on your plan in long term?
Investment markets can be quite volatile and some investors doubt whether investment can help to achieve their financial targets in long-term. However, you can feel relieve if you refer to the historical data. According to some studies from year 1900 -2000, global stocks generated 9.2% annualized return a year in U.S. dollars, including dividends. In the same period, government bonds around the world generated 4.4% annualized return. Do not forget there are World War, hyperinflation and Great Recession over last 100 years. Of course, equity market never moves in one direction forever. For instance, if you start investment in year 2000, you will only get single digit return until the end of 2010. However, if history is the guide, you should not feel unsecure to the power of long term investment.
6 Simple Tips for First-Time Investors
1. Understand your risk profile and your saving target
Investment market is never free of risk. So you should get ready to see a bumpy market sometimes in your investment life. That’s why understand your risk profile and pick a right investment strategy for yourself are important. Moreover, clarify your saving target is also essential. If you are planning for your retirement and the saving will be used 25 years later, you can choose a riskier strategy to fight for greater long-term growth potential.
2. Focus on Long Term Investment if Possible
Investment market looks like the rollercoaster sometimes. You should get ready to loss some of your money sometimes in your investment life. However, if you take a longer view, you will find investing in stocks and bonds can generate better returns than cash in long term.
3. Investing in Global Markets
In contrast to 20 years ago, investors pay more focuses to the East nowadays. Since year 2000, emerging markets and ASEAN generated far better returns than developed markets (More bumpy as well). Behind traditional investment markets such as U.S. and Europe, you can allocate part of your investment to emerging economies if you can bear the risk.
4. The crowd always wrong
Sometimes investment market is irrational. Investors rush to a sector or market in a short period of time to target short-term profit. The result can be disaster if you follow the crowd without understand the risk. Dotcom crash in year 2000 is a good illustration.
5. Past Performance is not a guarantee of Future Performance
Past performance means nothing to future performance. Superior performance can be attributed to superior stock-picking skills of fund managers, or simply by luck. If the overall market performs poorly, even the most superior fund managers may not allow to skip from the market slump.
6. Regular Savings can help
You may not feel secure if you invest a large amount of money in the volatile market. Then, regular saving can help you to smooth the peaks and troughs in the investment market. In a uptrend market, your investment may gain slower than the overall market, but in contrast, you are likely to lose less in a downtrend market.
Regular or lump sum investing?
If you feel uncomfortable by investing in volatile investment market, regular saving investing can help. Regular saving investors do not need to decide the timing of buy-in and the impact of volatility can be minimized. In contrast, timing of lump sum investments is extremely important. Investing at the top of market cycle is a disaster to lump-sum investors. You should aware the return of regular saving investor may behind in the lump-sum investors in uptrend markets, however, it provides good downside protection than lump-sum investment as well. If you invested in financial crisis between September 2007 and February 2009, regular saving investing of USD 50 into the average investment company would have lost 33 percent. The equivalent lump sum investment lost 44 percent. So if you think you can bear a high risk and invest in long term, lump-sum investing is a good choice. However, regular saving can protect capital during short-term market volatility.
“Do” and “Do Not” in the investment markets
“Do” know your risk profile
Investment market involves some degree of risks. Understand the percentage of loss you can help to avoid taking excessive risk in your investment.
“Do Not” Chase Return
High investment return is attractive but may imply higher risk as well. If you pick a investment with superior past performance, you may already taken excessive risk. Imagine what happens if the investment drops more than you can bear in a falling market. Low return may not a good news for you, that investment may be the best choice for you if you consider the underlying risk.
“Do Not” Panic
Market always goes up and down. Sometimes the market takes a long period of time to recover. However, if you sell your investment in panic, you are not likely to recoup your loss in the last market slump.
“Do Not” use your emerging money
You should keep some cash with you for unexpected or urgent matters. Do not use these amounts for investment; otherwise you may need to sell your investments in an un-favorite price in case of urgent matter.
“Do” invest in long term
It is difficult to predict the movement of equity market in short term. However, historical data show investment market goes up in long term. (10 to 20 years)
“Do Not” attempt to time to market
There are too many uncertainties in the world and investment market. Even experts cannot guarantee to catch the bottom of market accurately. Investing regularly can help to smooth the volatility of your investment and may be the best investment strategy to you.
“Do” diversified
If you invest in diversified investment, some components may take reduce some returns from your portfolio. However, they may curtail your loss in the downside market. Different investment assets can have different performance in different markets.
“Do” seek advice
If you do not understand the investment, you can seek advice. An IFA can help you to determine the level of risk you can accept and the appropriate asset allocation strategy.
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The information of this page is for reference only; it does not constitute any selling purpose, solicitation of buying and recommendation for you to participate and complete any transaction. |