Why You Should Invest Your Bonus

A YEAR-END bonus payment is given to employees based on their performance and that of the company. Most firms operate on a bonus system, providing employees with huge bonuses in highly profitable years and little or no bonuses in lean years. Many salespersons also operate on a year-end bonus system, in which they receive bonuses if they met or exceeded certain sales goals during the year.

Many persons usually view their bonus as the extra spending money and it can be blown with a few days of shopping.

However, wealth experts agree that bonuses should be seen as additional savings and invested in order to gain high returns for the new year. A bonus is not a regular part of your income; it is a payment for your creativity and you should be creative about how you use it.

There is nothing wrong with spending some of your bonus on yourself. After all, it is a reward. However, like your income, a part must be put aside to continue earning on that reward for you.

A good place to put your bonus is towards an emergency fund. It will seem as if you are not using it for much, when if you should put this money aside at the end of the year for unforeseen tragedies in the new year, you can rest assured that you can cover your expenses.

Another investment option is a fixed deposit account. A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings account.

You can also use your bonus to reach a big goal that seemed distant before. Such goals as continuing your education, buying furniture, paying deposit on a car, clearing up a few debts, and so on, are great ways of using your extra money.

A retirement savings plan is another option. It does not matter how young you are, it is never too early to start planning for retirement. Visit a few banks and investment institutions and compare different investment schemes. The earlier you start to save, the earlier you can reach your goal of retiring a few years sooner.

Of course, your extra money should be diversified and invested for the long term as a bonus this year does not guarantee one next year.

Why Investing In Mutual Funds Makes Sense

All investors want above average returns. However, not all investors take the time to become completely informed of the various investment options available. This invariably results in portfolios that are neither strategically positioned nor sufficiently diversified to minimize risk and maximize returns. One option that many persons have not yet fully taken advantage of is investing in mutual funds.

So what are mutual funds? Simply put, a mutual fund is an investment that pools money from many investors which is then invested in various securities. Guided by the objectives of the fund, the investment professionals who manage the fund make asset allocation decisions to ensure optimum performance. Gains made by the fund are then reinvested or passed on to shareholders/unit holders by way of distributions on a prorated basis.

So, does investing in mutual funds make sense? Yes, it does. Mutual funds provide investors with a wide range of benefits and advantages. Chief among these are:

• Immediate diversification for their investment dollar – Diversification is very important for any portfolio as it helps to minimize one’s risk exposure. Mutual funds provide investors with broad exposure to global stock markets, bond markets and money markets. In addition to being diversified by asset class, mutual funds are also diversified by geographic and economic sectors, by market capitalization, as well as by the investment style of the fund’s manager or managers.
• Increased buying power and economies of scale – Some investments have minimum entry requirements (i.e. a minimum investment amount) which all investors may not be able to satisfy. However, mutual funds allow ordinary investors to stretch their investment dollar further as the minimum investment required is relatively low. Additionally, there is an opportunity to invest in higher yielding securities globally, and fund mangers are able to execute trades on the largest and most cost-effective scale.
• Active and professional management – Mutual funds are managed by experienced investment professionals whose full-time job is to ensure that the respective funds provide maximum returns for investors. These fund managers have instantaneous access to crucial market information which allows them to make key decisions quickly, like locking in capital gains during bull runs (upward swings in the market) and taking defensive actions during market downturns.
• Greater choice, convenience and flexibility – Investors differ in terms of their appetite for risk and investment objectives. Similarly, mutual funds differ according to their risk and return levels and objectives. Therefore, an investor is very likely to find a mutual fund that will satisfy his or her particular investment needs. Some mutual funds are geared specifically towards high capital appreciation (growth funds) while others are focused on capital preservation and/or generation of income (income funds). Balanced funds combine both growth and income objectives.

It is very important to note that with mutual funds; past performance does not guarantee future performance. However, as outlined above, an investment of this nature does make sense as there are a host of benefits that investors can be assured of.

For additional information and advice on mutual funds or other investments that may be right for you, speak to your investment adviser today.