I’ve got money!- Now what? (Investing)

Introduction

Manage your money properly and you can build this money up into a large sum.
(Remember: The magic of compounding)

However:
There are risks.
If you don’t manage your money properly you can lose it!
How do you minimise the risk of loss?

Things to look out for before you invest Sections Below):-
-Does The Country’s Regulatory Environment look after the investor?
-Does the Financial Company have a good reputation?
-What of the Financial Skills of the people investing the money?
-Where do you get Information on Fund Managers and financial institutions?
-Is the Investment Time Frame important?

(See Also:

The Country’s Regulatory Environment.

If your money is stolen- are you protected by financial regulatory bodies and the countries legal system?

You will probably invest your child’s school fees in the USA, and not Somalia. In the USA you can appeal to well regulated financial bodies and the courts to fairly arbitrate a dispute.

You might invest in Somalia, but, unless you are very well informed, you will require a much higher return, and with the smaller, more speculative part of your portfolio.

What sort of Financial Company should you chose to help you with your money?

Some companies are well managed and will make money. Some companies are not well managed and will end up going bankrupt.

You want your money in a healthy, competitive financial institution that is making money for itself. It is also attracting customers because it makes money for its clients and at an acceptable level of risk.

You don’t want your money to disappear because you invested it through a dodgy company.

Financial Skills of people looking after my money

For longer term investing, your money manager, will have a team investing your money.
How good are they at their job?

Even within large, well known financial institutions they will have fund managers with different levels of skill.

Have the fund managers got a good track record?
Does their own income depend on the success of their investments?
Are they paid well if you do well, or are the fund managers paid independently of their success as money managers?
What are the opinions of independent publications on the fund manager’s ability to manage money?

If you get favourable answers to these questions you can be comfortable with the team managing your money.

A Short term savings account with a set interest rate, the specific manager is not important to you.
You expect to get the interest rate that is advertised.

However, financial institutions can go bankrupt!
A substantially higher interest rate means the bank needs to offer more money to attract customers than other banks.
Ask why?

Where do you get this Information on Fund Managers and financial institutions?

You are looking for independent, well researched and unbiased analysis.

Morningstar is a respected independent analyst that gives the financial data for past performance of many funds and companies.

In addition they will give a qualitative analysis of a number of the funds and individual company’s potential future performance.

Many of their teaching articles are free. Otherwise they have a subscription service that is very worth while for assessing financial assets, such as mutual funds.

www.morningstar.com is U.S.A. based with good articles for the learner as well as articles for the sophisticated investor.

www.morningstar.co.uk includes information on offshore funds which is probably what most Kenya based investors will use.

Otherwise news papers such as the Financial Times have a personal finance section as well as having statistics on equites, bonds and funds.

My favourite is Morningstar. If , however, you Google the name of an equity or search for an individual mutual fund you will find various WEB sites that offer financial analysis.

Your choice of investments is dependent upon your Time Frame

Investing for the Short term is very different to investing for the Long term:-

Short term money:-

You will need your money to be easy to get at.
All the money should be available.
Low or no returns on this money will have only a little impact on you.

In one month’s time you want to pay for a year’s school fees to put a mortgage down on a house. You are looking to have ALL the money available. There should be minimal risk that you lose half of it.

Invested in the equity market, you could lose a half of your money within a week.
Long term investors have time for their money to bounce back up.
Short term investors will not have time to wait for the equity markets to regain their value.

So I will put this short term money into savings account with a bank, or in short term government Treasury Bills etc.

My savings will hopefully retain their value.

Long term money:-

You want your money to grow.
Due to compounding returns over a long period, the money can grow substantially if you get a reasonable return.
Wise investment in equities and property has a reasonable probability of a good return over the long term.

The risks of the value of the investment going up and down is mitigated by the longer investment period.
Time will allow drops in value to correct, as long as the long term trend is for an increase in value.
You don’t want the money immediately so you can ignore short term paper gains and losses.

Leave you money in a bank account for a period and it will be eaten away by inflation.

So the difference between the Short term and the Long term?

Short Term:

If you are wanting the money soon i.e. over the short term then stay in cash, and short term fixed interest.

You can access the money within a short time frame.
You will get back what you expect to i.e. Your Capital + a little interest.
You are not at risk from the investment value falling just when you need the money.

But

Short term investments over the long term and the real value of your money (the amount of stuff you are able to buy) will be reduced by inflation.

For Short Term Investing, see also: Where do I keep Cash? Short Term Investing

Long term:-

If you don’t want to use your money for a long period:-

There are investments suitable for the long term that give you the possibility for a better average return than short term investments.
The options for a good average return will include a level of bounciness in the value of your investments (volatility) and a level of risk to your Capital.
You can accept more volatility, because your investment has time to correct itself and to continue to increase in value.
It is the increase in value over time, or trend line that is important.
Over the long term, you may end up with a substantial lump of money.

But

In the case of an emergency sale of investments during a market down-turn, you could end up with less than the capital you invested. You have less money than you began with.
Over the long term new risks may appear.
These could include political turmoil, your financial institution going bankrupt, your fund manager retiring etc.

Where do I keep Cash? -Short Term Investing

Important: This information on this WEB site ALONE should not be used to make investment decisions. Investing is particularly personal and is dependent upon your circumstances. You are strongly advised to take independent expert advice before deciding whether to/ or whether not to invest your money.

Your choice of investments is dependent upon your Time Frame

So the difference between the Short term and the Long term?

Where do I keep Cash? -Short Term Investing

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