Investing in Challenging Times

Tips for investing in challenging economic times

Good Advice for Hard Times

An economic downturn usually makes people more aware of the importance of saving and spending their money wisely.  Here are a few tips you can adopt to help you manage your money wisely during such periods.

 Pay off your debt

The repayment of debt is the best investment you can ever make. A downturn in the economy means fewer job opportunities, wage cuts, and rising unemployment. In order to protect yourself, it is wise to repair your personal balance sheet. Reduce your spending and use the money you save to reduce personal debt first (credit cards, overdrafts, loans), then your mortgage. Build a cash cushion to help meet unexpected bills or to cover expenditure if your income falls.

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2016 Financial Resolutions

Life GoalsEvery year we make plans to start the New Year with a clean slate, or with new goals. Maybe you want to shed a few pounds, start a new course, or open a business; but have you ever thought about your long-term goals maybe a new car, house, a dream vacation, retirement. Planning for the future starts now and the New Year is a great time to overhaul your financial life for the better. One excellent place to start is by making sound resolutions that can help to get you closer to your financial goals.

Financial Resolution 1: Know What You Want

Have clear, concise financial goals for the year.

Unrealistic Goal – “I want to pay off my credit card and have more money in the bank”.

Instead, say, “I will keep the balance on my credit card down to $0 after every month, and ensure I have over $5,000 in my savings account.”

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Types of Investment Instruments

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Types of Investment Instruments

The financial world is full of jargon which those persons who routinely operate outside of it may need to have clarified. You will find below explanations for some of the instruments traded in the securities market.

Investment Instruments

  • Securities– an investment instrument that has financial value and can be traded. This instrument entitles the owner to specified types of financial benefits. The main classes of securities registered with the TTSEC include:
    • equity
    • stocks
    • debt instruments
    • mutual funds
  • Equity- an investment instrument through which a corporation raises capital/money by issuing shares which entitle holders to an ownership interest in a corporation. It also entitles the holder to a proportionate share in the corporation’s assets and profits
  • Stocks– are a share of the ownership of a company. Initially, they are sold by the original owners of a company to gain additional funds to help the company grow. The owners basically sell control of the company to the stockholders. After the initial sale, the shares can be sold and resold on the stock market.
  • Bonds– a debt investment in which an investor loans money to an entity (corporate or governmental). In this case the individual is considered the lender and the government or company is the borrower. The funds are borrowed for a defined period of time at an agreed interest rate. Bonds are used by companies, and governments to finance a variety of projects and activities. A bondholder is entitled to regular interest payments as due, as well as the return of principal when the bond matures
  • Mutual funds- an investment vehicle which pools money from investors and purchases various types of securities such as shares, bonds or money market securities based on stated investment objectives. Each investor owns shares, which represent a portion of the holdings of the fund. Also called a collective investment scheme (CIS) this fund provides almost absolute control of the investment to the company pooling and investing the money.

You can make money from a mutual fund in three ways:

  • Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution.
  • If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
  • If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit.

Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares. 

How Do I Build An Investment Portfolio?

You should establish your investment strategy by deciding on the mix of investment products (assets) that you seek to purchase. The saying Don’t put your eggs in one basket” is very relevant to investing success. In building your investment portfolio you can spread your money across different classes of investments, including:

1. Cash and Cash Equivalents 

  • High liquidity,easy to get your money when you need it
  • Provide lower return, but with almost no risk

Examples: Savings accounts, money market funds, and treasury bills. 

2. Fixed Income Investments 

  • Offer a fixed rate of return that doesn’t change
  • Provide a steady flow of income
  • Can lower your investment risk

Examples: Bonds, bond mutual funds

3. Equity Investments 

  • Buy a share of ownership in a company
  • Are riskier than fixed income investments
  • Offer the potential to make far more than a fixed income investment or cash equivalent

Future value is uncertain, and will be affected by:

  1. How well the company is doing now and its future growth
  2. News events specific to the company
  3. Economic trends

Examples: You can buy shares of an individual company’s stock, or buy units of a mutual fund that invests in the stocks of many companies.

To build your investment portfolio, choose from one or more of these asset classes to get the right balance of risk and return for you.

Remember, a well thought out asset mix is the key to your investment success. In most cases, when you mix your classes of investments, you reduce the risks associated with investing.