Delving into the world of investments is possibly one of the best ways to successfully grow your money. Investment options and opportunities have greatly increased, but this can be confusing for individuals who are not familiar with the financial world. Individuals must maintain the concept of brainstorming, carefully analysing important considerations that will smoothen their first steps in making their investment decisions.

Identify your investment objectives

The saying ‘One man’s food is another man’s poison’ also applies to the investment scenario. We all have our very own individual objectives and aspirations. We also have different tendencies in the level of risk we are willing to accept and take. As a starting point, you need to outline your investment goals, which will assist you to choose where and how you invest your funds.

Your aim may be towards regular income or maybe also to grow your wealth. Your investment may have long-term ambitions for your retirement, or it can also have shorter-term goals. Whatever the objective, a financial advisor can assist by asking you the necessary questions which will help you better understand your future targets.

What is your risk tolerance?

The phrase ‘no pain, no gain’ practically sums up the relationship between risk and reward. The aggressive investor with a high level of risk tolerance might be willing to risk money to get potentially better returns while a low-risk-tolerant investor would generally favour investments that have the propensity of delivering regular income, thereby opting towards a more conservative strategy.

This comes at a cost of potentially lower rewards in terms of income. Demographic factors such as age, job and personal circumstances can determine your risk appetite. The general tendency is that young investors can afford to take higher risk as they have more time allowance to recover any potential losses should the markets decline.  As we grow older and retirement looms closer, the tendency is to become more conservative. Whatever the age and risk tolerance you are willing to take, it is wise to diversify your investments, especially if it is of a high-risk nature. Prudency teaches to set aside at least 20 per cent of your saved lump sum for any unplanned circumstances.

Time is another factor that helps the investor determine where to invest your money before cashing in

Generally, your comfort level with risk should pass the ‘good night’s sleep’ test, which means you should not worry about the amount of risk in your portfolio so much that it causes you to question your decisions.

The time factor

Time is another factor that helps the investor determine where to invest your money before cashing in. This includes the time you are willing to wait it out and whether you will be requiring a portion or all of your investment money in the short- or long-term. If for example you plan to use your money in the short-term, you will be better off by choosing a more conservative investment, as opposed to a more long-term plan, in which case you can choose riskier investments with the prospect of higher returns.

How much capital are you willing to invest?

The sum of capital invested could play a role in the choice of investment. The options vary between regular savings for investment purposes such as retirement plans, while lump sum investments can take different forms, depending on factors of time and risk appetite among others.

Maintaining an emergency pot is crucial when one explores the investment world. Many recommend to set aside circa six to nine months of your annual income. This will increase your liquidity and decrease the risk of not having cash when you need it or having to liquidate investments early.

Benefits of a financial advisor

A licensed financial advisor will guide you on all these evaluations to determine which investment portfolio suits your specific preferences. In addition, an advisor will better help you assess your risk tolerance while providing expert advice to reach investment goals while assessing your financial situation.

An advisor will also help you balance your risks and rewards by diversifying your investments.  

Finally, an advisor will guide you in rebalancing your portfolio to reach your investment objectives and most importantly, to grow your money.

This article is not, and nothing in it should be construed as a recommendation in respect of investment products or services offered by the BOV Group.  Any views, assumptions or opinions expressed in this article are those of the author. 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. Bank of Valletta p.l.c. is a public limited company regulated by the MFSA, licensed to carry out the business of banking and investment services in terms of the Banking and Investment Services Acts (Cap.370, 371 of the Laws of Malta). 

M’Stellies Cauchi, financial advisor, BOV Investment Centre in Gozo