Rarely are the topics of investments, pensions or savings the centre of discussion among young adults. Living life, buying a car, a house, working for a career and travelling around the world are definitely more interesting. But as time goes by, one may feel a stab of remorse when looking back with surprise at the amounts spent and not saved.
Traditionally, surplus income used to be deposited into a savings account, but today inflation, coupled with historic low interest rates, makes such accounts quite unattractive for savvy savers. While you should set aside liquid funds for a rainy day or emergency, you should also consider alternatives to cash savings, such as investing.
Investing can seem daunting to newbies, but understanding the key principles of investments and seeking advice from qualified professionals can make the task of building up an investment portfolio much more appealing.
The first rule is to understand that investing always involves an element of risk. The value of investments is neither predictable nor stable. Prices of shares, bonds and other assets fluctuate continuously; this is why understanding your own risk tolerance is important and should be established at the outset.
Long-term investments are usually the key to getting a good return on your money
Investing also revolves around goals. Long-term investments are usually the key to getting a good return on your money. History has shown that investment in equities generally outperforms cash over the long term, so it makes sense to commit to our investment choices for at least five years.
It is vital to define your objectives and determine what you are aiming for prior to taking any investment decision. The more time you have to invest, the more ambitious you can be with your investment goals.
As long as you have the right appetite, you can afford to take more risk over long timeframes, as your investments will be able to ride out the inevitable market volatility and possibly achieve upside potential along the way.
However, keep in mind that the closer you are to withdrawing your investment, such as upon retirement, the more cautious you should be. At this point you should minimise the risk of sudden market movements that might wipe out any gains achieved. It would be wise to diversify and spread your risk by investing in a combination of shares, bonds and other asset classes across a wide range of sectors, regions and markets.
Finally, you should take an active interest in your investments. There is no need to be an expert in investments but at the very least you should monitor your investment portfolio to ensure that it has maintained the right asset mix in line with your circumstances and ultimate goals.
Roberta Bellizzi is a seasoned banker with 26 years of banking experience in retail, financial planning and management.
Take the first step in your investment journey by setting up an appointment with one of Bank of Valletta’s specialised financial advisors who will guide you on how to meet your financial goals. E-mail customercare@bov.com.
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. The 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.