Best investment plan – Do’s and Don’ts

May 05

Best investment plan – Do’s and Don’ts

Many people think that the best investment plan is the one with the highest return and the lowest risk. Nothing could be further from the truth.

Regardless of the economic environment, there is a universal truth which dictates that ‘High risk = High Return’ and ‘Low Risk = Low returns’. On the flip side the fact also remains that, ‘High risk = High Losses’ and ‘Low Risk = Low losses’.

“Risk cannot be eliminated, it can only be mitigated or managed”

Traditional low risk vehicles include sovereign bonds, treasury notes etc., while traditional ‘higher risk’ vehicles include shares, equities, corporate bonds, mutual funds, futures, forex, etc… Other asset classes such as commodities, precious metals, rare earth metals, energy, infrastructure, can be classified in different risk bands.

The best investment plan uses a diversified portfolio

Diversification is the most common technique used by investors to manage investment risk. When you want to invest in any investment plan, focus on the variety of underlying funds available for choice. Always consider your financial advisor’s opinion, and do your due diligence as well.

5 ways in which you can structure the best investment plan for yourself.

  • Asset diversification– this type of diversification is where your investment is spread over various asset classes with various risk levels.
  • Geographical diversification– Location greatly affects assets. This is mainly because every country has different factors affecting their economy such as currency, petroleum prices, level of industrial development or availability of resources.
  • Sector diversification and number of holdings– Market trends affects and differ from country to country, it is a good idea to watch which sector is doing well in the particular country.
  • Time diversification– A simple way to reduce risk is to invest for the long-term. Taking a long-term view allows your investment more time to grow and possibly makes up for any short-term fluctuations.
  • Alternative investments – these types of investments provide positive returns regardless of market direction. Word of caution, DO NOT invest in something you cannot understand.

Other factors that should be considered in choosing the best investment plan

The term of the investment plan makes a difference

The amount of time you have remaining to achieve your goals should also dictate the risk profile of your investment portfolio. e.g. short term plans should not have very high percentages of high risk asset classes. Longer term plans should be structured for higher risk in the beginning and move towards safer assets as the maturity nears.

Charges are important when selecting the best investment plan

When choosing the best investment plan suited to your needs, you should look at the charging structure carefully. Some investment plans collect their charges up-front. Others spread the charges out evenly. Generally the lower the charges, the better.

Again, taking the advice of an independent financial advisor is very important in order to understand the different investment plans available in the market.

Qualified independent financial advice is important

Its your hard-earned money !!! Don’t work with tied agents or banks, they just cannot offer you impartial advice. Use the services of our independent financial advisors.

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About the Author

Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide. He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create A Second Income’ through investments.

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