Why Invest In This Economic Climate

Investing in the current economic climate, particularly for first time investors can be a challenging decision, particularly if free cash for the purposes of investing is limited. However, investing is a commitment that individuals, companies and governments alike make to achieve future positive benefits for themselves or for others. Notice I use the word commitment, as there are many things competing for your salary, and we all have to decide what percentage of our income we can do without today to help us achieve our longer term goals in the future, such as the purchasing of a car, a house, or for our retirement.

Any time you invest, you’re devoting your own time, resources, or effort to achieve a greater goal. You can invest your weekends in a good cause, invest your intelligence in your job, or invest your time in your relationship. Just as you undertake each of these expecting good results, you invest your money in a stock, bond or mutual fund because you think its value will appreciate over time.

Investing money involves putting that money into some form of “security” – a fancy word for anything that is “secured” by other assets. Stocks, bonds, mutual funds, and certificates of deposit are all types of securities.

Two steps to plan your investments:

1. Set your goals. Ask yourself:
• What are my top financial goals? Is it a home, car, your child’s education, or your retirement?
• When do I hope to reach those goals? Is it 1, 3 or 5 years from now.
• How much money do I want to save? What percentage of your salary or other income can I put towards investing in achieving my specific longer term goals?

2. Find out what kind of investor you are. Ask yourself:
• How do I want to approach investing?
• How important is it to me to keep my money safe?
• How comfortable am I with the idea that I may sometimes lose money if I want to grow my savings faster?
• How important is it to me to make a good return on my investments?

Once you can answer steps one and two, an Investment Advisor can assist you in putting an investment portfolio together that meet your needs.

WHAT SHOULD I INVEST IN?
The single greatest factor, by far, in growing your long-term wealth is the rate of return you get on your investment. There are times, though, when you may need to park your money some place for a short time, even though you won’t get very god returns. Here is a summary of the most common short-term savings vehicles:
• Savings Account: Often the first banking product people use, savings accounts earn a small amount in interest, so they’re a little better than that dusty piggy bank on the dresser.

• Money Market Funds: These are a specialized type of mutual funds or Unit Trusts that invest in extremely short-term bonds, mainly Government or Central Bank Fixed Income instruments with a maturity of less than a year. Unlike most mutual funds, shares in a money market fund are designed to be worth $1 at all times. Money market funds usually pay better interest rates than a conventional savings account does, but you’ll earn less than what you would get purchasing longer term instruments which pay higher rates of interest.

• Treasury Bills: These are discount or zero coupon instruments because they are purchased at an amount below the amount that will be paid at maturity.

Here are the most common long-term investing vehicles:

• Bonds: Bonds come in various forms. They’re known as “fixed-income” securities because the amount of income the bond generates each year is “fixed”, or set. From an investor’s point of view, bonds are similar to CDs, except that the government or corporations issue them, instead of banks.

• Stocks: Stocks are a way for individuals to own parts of businesses. A share of stock represents a proportional share of ownership in a company. As the value of the company changes, the value of the share in that company rises and falls. Over a long term, stocks have historically outperformed all other investments. From 1926 to 2008, the S&P 500 returned an average annual 9.6 percent gain.

• Mutual Funds: Mutual funds are a way for investors to pool their money to buy stocks, bonds, or anything else the fund manager decides is worthwhile. Instead of managing your money yourself, you turn over the responsibility of managing that money to a professional.

My final tip to want-to-be investors is to stop procrastinating. If you are still asking if and when you should invest, the answer is YES, start now, the sooner the better. The earlier you begin is the closer you are to taking the steps required to achieve your short, medium and long-term goals.