Planning for the future is essential for financial security.  Investing gives you the opportunity to place your money in financial vehicles that have the potential to offer a better rate of return. The prospects to increase your financial worth increases with each investment opportunity.

One of the benefits of investing is the financial stability it can provide. Inflation is a certainty – a reality. Diversifying your portfolio of investments could be one of the ways of combating and reducing the risk of inflation which is hardly achievable if you had to leave your money in a regular current or savings account; when taking inflation into consideration, you could be losing monetary value over time.

Where should I begin?

At its core, investing is about managing your money today with the expectation of getting more money back in the future, taking into consideration time, risk and factoring in inflation.

One of the most important aspects in financial planning is to know and be aware of one’s risk appetite.  Risk appetite and objectives must be clearly established at the initial stages. Each goal that matters to the investor should be carefully considered which would make the investment process smoother.  The assessment of risk tolerance must consider the investor’s willingness and ability to take risk.

Initially, your first step is to approach your trusted financial institution which will provide  the necessary support in your financial planning. 

Financial institutions offer a number of benefits, including safety, liquidity and economies of scale in investments in the banking sector and asset management. Depending on the level of investment, one may seek a financial adviser to assist with the necessary financial decisions. 

We would surely like to lead a comfortable lifestyle throughout our retirement days

Qualified financial advisers have a broader and deeper knowledge of money management. They have the necessary skills and can collate personalised financial information to support you with financial planning, investing, saving for retirement and estate planning.

Which types of investments should I consider?

Investments are generally categorised into three major categories: stocks, bonds and cash.

Risk and reward often go hand in hand. The relationship between risk and reward is key in building one’s personal investment philosophy.  All investments carry a different degree of risk.  The higher the risk, the higher the potential return, with stocks and shares being among the  riskiest, generically speaking.

For a diversified portfolio, four types of investments may be  considered. Let us have a brief look at these.

Stocks: When purchasing a stock, often also referred to as shares, one is buying a share in the company’s earnings and assets.  Money is earned when the value of the stock of the said company rises and the investor is able to find a buyer for the stock at a profit.

Bonds: A bond is a form of a loan in simplified terms. You as the investor ‘loan’ out money to the company or government who is issuing the specific bond. The issuer of the bond, whether a private company or the government, is borrowing your money for a specific reason as stated in the prospectus of the company. Bonds carry a specific term and as the investor you will receive your investment back with interest upon maturity, unless you decide to redeem the investments before the maturity date on the market, and provided that you find a buyer who is willing to purchase the bond. Bonds are a fixed-income investment.  Interest is generally paid in regular instalments, often once or twice a year.

Mutual funds: Mutual funds are types of financial vehicles made up of a pool of money collected from a number of investors and invest in securities like stocks, bonds, money market instruments and other assets. Mutual funds are managed by professional fund managers, who allocate the fund’s assets and attempt to produce  capital gains or income for the fund’s investors.

A mutual fund’s portfolio is structured and maintained to match the investment objectives as stated in its prospectus. One of the benefits of investing in funds is that they provide a ‘cushion’ effect since they bring together a pool of investors who collectively invest in a variety of different securities.

Exchange traded products:  ETPs are types of securities that track underlying securities, an index or other financial instruments. Similarly to stocks, ETPs trade on exchanges, which means that their prices can fluctuate from day to day and also within the day. However, the prices of ETPs are derived from the  underlying investments that  they track.

We all hope to retire one day and we would surely like to lead a comfortable lifestyle throughout our retirement days. Many investors would like the peace of mind that they can generate enough income to retain their current standard of living. Providing assurance is not a simple equation: investments can be one of the steps to help in achieving this objective through spreading out your risks and investing in different financial instruments.

Sandra Magro is a qualified financial adviser and manager at BOV Investment Centre in Qormi with over 16 years of experience in the financial services industry.

This article is not, and nothing in it should be, construed as an offer, invitation or recommendation in respect of investment products or services offered by the BOV Group.  Value of investments may go down as well as up and may be affected by changes in currency exchange rates. Past performance is not a guide to future performance.