Your investment advisor can guide you to long term wealth creation, but the operative word is guide. They are simply a resource tool to help you reach where you want to go – to help you set realistic investment goals. Lets take a look at some of the questions investors should think about when deciding how to invest their funds – with the help of their financial advisor.

Investment Policy Statement

1. What are the real risks involved, especially in the short run?

2. What are the most likely emotional responses I will have if my investment loses value?

3. How knowledgeable am I about investments and the markets in general?

4. What other capital or income sources do I have?

5. How important is this particular investment to my overall financial position?

6. What, if any, legal or regulatory restrictions affect my investment needs?

7. What, if any, unanticipated fluctuations in portfolio value might affect my overall investment goals?

When you have the answer to these questions (preferably written down and filed with your investment advisor), the next step is to identify the investments that are right for your circumstances. Constructing an investment policy statement is part of the overall portfolio management process.

Step 1:
Create Investment policy Statement
Focus: Short term needs
Long term needs
Knowledge about investing
Expectations

Step 2:
Examine current and projected financial, economical, political and social conditions that will affect investments. (Your financial advisors’ research department can help you with this.)

Step 3:
Implement the plan by constructing the portfolio by meeting your needs with the minimum risk levels.

Step 4:
Monitor and update as the investor needs and environmental conditions dictate.

Remember, financial planning is a partnership between you and your financial advisor, with the ultimate responsibility in your hands. Are you serious about setting realistic investment goals?

Consider this … electric bills, car loan payments, rent, school fees, groceries; these are all immediate bills that must be paid NOW, in the present. If these are not dealt with the negative impact is immediate: lights off, additional interest on car payments or if really severe – you cannot register for school or there is no food to eat at home. The negative effects of not providing for these imminent bills are clear & present!

It’s not as obvious when the impact of an action is not immediately evident – for example, making your life insurance policy lapse. The effect of this is in the future and therefore does not appear to be as important, as the impact is not felt now!

This period of life requires planning today in order to reap benefits tomorrow. Retirement is typically defined as the point where an individual stops employment whether they are self-employed or employed to an organization. When this new stage of life (retirement) is attained there are a number of changes to which one has to become accustomed. Most important of all, is not receiving your regular stream of income, which you have had for the past 40 years of your working life! Effective Retirement Planning can provide the support you require for your retirement years.

But what is effective retirement planning? It is taking the necessary steps to sit with a financial advisor and ascertain the best way to effectively plan for what you want in your future. One of the simplest and most convenient ways of doing this is becoming a part of a pension plan. Pension plans offer significant tax-advantaged savings towards retirement.

If you are employed to a company, ensure that you are a part of the employer-sponsored pension plan and maximize your contributions to this fund. However, if you are self-employed or employed to a company that does not offer a pension plan, then you can become a plan member in an Individual Retirement Account.

It is time to take responsibility for our future and begin actively saving towards retirement. This benefit is no longer limited only to persons employed to an organization, as both self-employed individuals and persons employed to companies who do not offer a pension can now save in a structured pension plan. With the improvements to Approved Retirement Accounts, now being offered by financial institutions, these persons can now take advantage of the tax savings, which are an inherent feature in pension plans.

Retirement must be treated as an important aspect when planning your finances. The effects of not planning can have far reaching impact for both yourself and your family.

Get Started…

Convincing children to do anything is challenging, much less convincing them to do so regularly. Developing a saving habit may be difficult for children because they may not understand why there is a need to save since their parents take care of all their needs. Here’s an approach to think about. Just as you save for big ticket items, help your children to set and achieve savings goals. You could make a deal with them for special “nice to have” purchases – for every portion they save, you will match it. That encourages saving and regularity!

Then, Find the Money to Save…

You may be thinking where do children get money to save? Well, as it turns out there are lots of sources. First, cash gifts for birthdays or special occasions can be saved in whole or in part. Second, encourage them to save some of their allowance and lunch money. Perhaps you can tie increases to their ability to demonstrate disciplined savings! Third, other than standard chores, maybe you can offer to pay them for special tasks and then encourage them to save all or part of those earnings. Think creatively, apply some discipline, and your children will easily develop the saving habit.

And Now, Decide Where to Save…

A “piggy bank” is always a good starting place because it develops the habit of putting money aside. Experts say use a clear glass jar so children can see the money “growing” with every “deposit”.

The real benefit to your children will come when they begin to understand the power of compound interest, which is what you can get from a savings account. Don’t forget also that long term saving is rewarded; therefore, it is good to start as early as possible.

Firstly, are you prepared to take the risk of investing? If not, you might feel happier with the interest you get from a savings account.

Secondly, remember that investment is a long-term plan. If the stock market crashes, you might have to wait some time before you get your money back or make a profit.

Ways to Invest
There are several ways to invest your money. Here are some of the most popular.

Stocks and Shares
By putting your money into shares, you’re giving companies your money to help them run their business. In return, if they are successful and their share price goes up, you will benefit from the rise in value. Equally, if the company’s value falls, you’ll be losing money. Right now, we’re in a very unstable corporate environment and many companies have lost value. Be careful investing unless you have received good advice!

Unit Trust and Investment Trusts
You can see with shares, putting your money into one company can be quite dangerous. To combat this, Trusts do three important things:

First, they put your money into several companies at once. That way, you’re spreading your risk across the fortunes of many companies: some might lose money, but some will rise in value.

Secondly, a Trust contains not just your money, but many other people’s too. You’re joining a whole bunch of people all committing their cash. Together you have more buying power to spread your risk across companies, and this larger pot of cash usually gets the Trust a better deal.

Finally, your funds will be looked after by a Fund Manager. It’s a Fund Manager’s job to spend time looking for the best place for your cash – day in day out – which means you need to know much less about the stock market than if you were investing privately.

Bonds
These are a particularly safe investment; in fact, you know exactly how much you’ll get back before you even buy them. Bonds are a loan from you to somebody else 9usually the government), for a set length of time, usually between three months and five years. But, because there’s no risk, they don’t pay back particularly well.

Property
Buying and selling property can be lucrative, especially since in many areas property prices have risen dramatically. You will need a lot of money to start with, and if the value of your property falls, you stand to lose a serious amount of money.

Other Goods
There’s a market for most things people want – antiques and collectibles, land, fine wine, etc. But you must understand that buying goods as an investment isn’t the same as picking up a bargain and selling it at a profit. Bargains are rare, and usually rely on the seller being stupid. The value in investing is picking goods to buy which grow in value by themselves, because demand for them grows over time.

Getting Help
Don’t jump into investment without getting good advice from someone who knows their stuff. Get help if you need it. The do-it-yourself approach may not be suitable for everyone. If you try it and its not working, or you’re afraid to try it at all, then you should seek professional assistance.

Your first port of call is an Independent Financial Adviser. They are qualified to give you entirely impartial advice about your finances, and recommend a course of action.

Arm yourself with knowledge. Always do your homework. Understanding financial matters and those that could affect you. Understand your current investments and the risks associated with them. Be cautious when evaluating the advice of anyone with a vested interested.

If you are going to invest in stocks, research companies until you understand them. Remember investment does involve some amount of risk, so choose carefully and make sure you have done your research.

Now, assuming that you sorted out your insurance and cash reserves requirements – which are really the basics of financial plan, we can begin the discussion of investing to maximize your return and minimize your risk. And let us say right here that it is best to speak to a licensed financial adviser to help you determine your return and risk requirement.

Where you are in the life cycle, determines where you are best served by your financial adviser. Typically, younger persons can invest more aggressively so that they can grow their funds to meet their needs. But what if you are uncomfortable with risk? Then no matter your age, you will look to more conservative investment options. For those in retirement, years of savings can be wiped out by poor investment decisions or in the case of global meltdown, actions that you have no control of.

That is why, a complete financial plan is important. But prior to getting there, it is important to have an understanding of where you are in your life.

Accumulation Phase
The ages of 25 to 35 are considered the typical accumulation phase. Now some of us are late bloomers and so don’t really start to get serious until the big 4-0. That said, during this phase, it is characterized by the following constraints:

• Early to middle years of working careers
• Net worth is typically small
• Debt is typically large (courtesy of student loans, car loans, etc.)
• Long investment horizon
• Focus on accumulating assets to satisfy immediate needs (deposit for house, children’s education, etc.)

Consolidation Phase
They say that life begins at 40 and so does the consolidation phase. Actually, financial experts consider this phase to actually begin at 45 and are characterized by the following:

• Past the mid point of their working careers
• Have paid off much of their outstanding car and student loan debts
• Mortgage is main debt burden
• Balancing children’s education with retirement planning
• Income typically exceeds expenses
• Investment horizon is still long with 20 to 30 years before retirement

Spending/Gifting Phase
These days, retirement from one career might be the beginning of a whole new career. The traditional view of retirement where by you are simply sitting around and doing nothing is a thing of the past. Nevertheless, there are some characteristics that define retirement:

• Health care expenses are a greater part of income
• Income comes from early investing activities or company/state pension
• Greater concern about capital preservation while balancing exposure to inflation
• Excess assets can be used to assist friends or family

1. Your savings, obligations and age matter – a lot! In other words, you should not invest until you have saved and given yourself a comfortable cushion. In the current environment of rising cost of living and job losses, aim for a minimum of 12 months. If you have high expense obligations, then you cannot afford to risk money that you could lose (remember, that is what an investment is). The older you get, the less risk you can afford to take with your funds, because your potential working years are declining as you near retirement age.

2. Only invest in products and services you understand. How many times have people tried to convince you about a “sure thing”, and told you “here’s a hot tip’? It may very well be, but if the person telling you cannot explain the investment and why it’s such a “hot tip” or a “sure thing”, then those are grounds on which you should doubt it. And, it would be prudent to understand what influences the investment – what external factors are likely to make the investment do well or do badly. No one is expecting you to be an expert, but it’s your money, therefore you should be able to evaluate if what the “expert” says make sense.

3. Be conservative and invest with solid reputable institutions. We are living with the certainty of uncertainty. Safe is better than sorry. Therefore, you need to do your due diligence and resist the temptation to be lured by the promise of unusually high returns, when you may have doubts about the strength or soundness of an institution. Remember, regulated institutions are monitored while regulated institutions are not. And, return of principal is just as, if not more important than return on principal.

4. Know Yourself. Believe it or not, this one of the most critical things about investing -knowing your own risk tolerance. You may get a great tip, understanding what the investment entails, understand that it’s an investment (as opposed to savings), and be comfortable with the institution, but the product may just be too risky for you. On the other hand, remember that not all investments carry the same risk, and some may just be right for you, once you have sufficient savings tucked away.

Stocks and bonds are two great options that allow you to make investments now that will put you in a position to benefit from huge returns later.

Stocks
A stock is ownership of a percentage of shares in publicly traded company. By owning stocks in companies, you have the right to vote on important company matters such as selection of the Board of Directors. Additionally, stocks allow you to receive a portion of the profits distributed by the company.

There are two types of stocks:

• Preferred Stock – with these types of stocks, companies usually distribute a percentage of dividends each year based on the profits of the company.

• Common Stock – this is usually held by individuals within the public domain. With this type of stock, owners receive dividends based on the remainder of the profits after the preferred stockholders have been paid theirs.

Investing is technically making your money work for you; that is, investing money to make more money. With stocks, as the value of the company increases so will your investment. Stock shares are bought, sold and traded on stock exchanges.

Stocks are usually available through a stockbroker, who will purchase the stock on your behalf, or through mutual funds, which is an investment company that offers and buys shares at the request of the share holder.

Bonds
Bonds are certificates of debt that are issued by the government or a particular corporation, promising payment of the original amount invested at a fixed interest rate, usually by a specific date. They are therefore loans to the government or a corporation, and bond owners are usually paid for providing this loan to the institution. Bonds are one way the government uses to make money.

Bonds are usually bought and sold using institutions such as bond funds, banks, insurance companies or pension funds. Bonds come with a number of advantages that make them attractive to many persons. It is fairly easy to sell bonds and the rate of interest is usually higher than those associated with stocks. Bondholders also enjoy a certain level of legal protection, since it is the law in many countries that if a company goes bankrupt, the bondholder is entitled to receive some of his/her money back.

Ultimately though, both stocks and bonds are risky investments and while they have the potential to produce significant wealth, the investor can also lose a huge amount of his/her investment.

If you decide to invest in either stocks or bonds, it is important for you to seek advice from professional who will be able to advise you about those assets with the greatest possibility for success and those that may be too risky for your pocket. Equip yourself with information to minimize your chances of making bad financial decisions.