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Starting Investing With Just $100

The Million-Dollar Question: "Bonds, Equities, Unit Trusts... What On Earth Are They? How Do You Figure Out Which Is The Best Investment Method For You?

Taking A Risk

Before you decide to invest, understand that any form of investment is a risk - you could lose some or all of your money. The smart investor reduces her risk. You can do this by, for example, diversifying across geographical regions and industries and not by plonking your entire life savings into one single tech company. Before determining the amount you wish to invest, figure out what your true comfort level is. Would you be able to sleep peacefully at night if you lose a large chunk of that money? Your portfolio should fit the amount of money you're willing to lose, not the amount of returns you wish to make.

Bonds, Equities Explained

Of the two, bonds are relatively lower in risk and experience smaller price fluctuations. A bond represents a company's promise to repay the amount that is borrowed from investors. Equities (or shares) represent ownership in a company. If you own 1,000 shares of a company that has issued 10,000 shares, you own one percent of it. Equities have more dramatic fluctuations. This means you can either make a lot of money within a short period of time or lose it all in a single day.

Start With Unit Trust

If you are new to bonds and equities, an excellent way to start is by looking at unit trusts. A unit trust pools a huge amount of money from investors together into one fund. This money is then invested by a fund manager into companies in various countries and industries. The fund you invest in can hold a combination of bonds and equities. By investing in a unit trust, your money - and risk - is spread over some 100 companies. Despite the negative views many people have towards them, unit trusts can actually provide investors a return of eight to 20 percent annually. The minimum amount of money required for your investment can start from as low as $100 a month.

Choosing Funds

There are many funds available. But before you decide where to put your money, you should do a risk profiling assessment with your financial planner. It will help you determine your time horizon, your risk appetite and your objectives.

Lessons At A Glance

  • Your portfolio should be tailored according to how much you can lose, not how much you want to make.
  • The longer your investment time horizon, the more average your returns, and the less likely you are to lose all your money.
  • Invest in unit trusts if you are new to investment because your risk is diversified over many companies.
  • Always do a risk profile assessment with a financial planner before deciding which unit trust to invest in.
 

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