10 Money Tips

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Take these tips to heart and you’ll have a solid foundation for future financial well-being.



1. Use the “Can I sleep?” judgment when making investments. An investment is too risky if you are going to lie awake at night worrying about it.

2. Diversify your investments. Never invest more than five percent of your assets in a narrow investment (for example, a specialist unit trust fund such as an emerging company one) or in an unregulated investment. Diversifying your investments will ensure you don’t lose everything if one investment bombs out. Many people who invested all their assets in major scams such as Masterbond lost everything, and the same thing can happen in the regulated market if you put all your money into one sector ... just consider how the information technology bubble burst in 2000.

3. Be extremely cautious if the returns promised on an investment exceed what is generally available. If they sound too good to be true, they probably are. It usually means the investment is too ambitious in its claims, too risky, or simply a scam.

4. Know the difference between effective and nominal interest rates. Normally, banks will quote you a nominal interest rate when lending you money, but a higher, effective interest rate when you invest money. The nominal interest rate is the simple rate. The effective rate is calculated by compounding the interest earned or charged.

5. How do you decide whether you should invest directly in shares? Simple. If you haven’t got the time to learn about stock markets, to follow the progress of companies or to track your portfolio, rather invest in unit trust funds and/or life assurance endowment policies that have shares as their underlying investments.

6. If an investment product is too complicated to understand, avoid it. It does not mean you are stupid. It simply means that the product provider and/or financial adviser are trying to baffle you.

7. Always check the costs of any investment product. Some products are prohibitively expensive. You should be given a breakdown of the costs in three ways: as a percentage of your investment; as a fixed amount; and as the amount by which the costs will reduce your investment at maturity date. Be very careful if the costs are more than six percent at entry and more than two percent a year thereafter.

8. Always check how much commission is being paid to your financial adviser. Some financial products – particularly those offered by so-called linked investment product providers – come with particularly high costs and commissions. High commissions can be a perverse incentive for advisers to mis-sell.

9. Don’t be afraid to negotiate commissions/fees for financial advice. Most financial products allow you to do this. After all, it is your money.

10. If you are a true investor, you invest for the long term and you don’t panic when markets fall. If you want to invest for the short term, you should use a bank term deposit or a money market account rather than an investment in the equity markets.

Source: http://www.stockmaster.in