General investment FAQs

Money has a tendency to lose value over time because the price of goods and services carry an upward tendency, also known as inflation. Here are some factors that could erode the value of your money:

• Inflation - Inflation occurs when the price of goods and services rises. When the price of goods and services level rise, each unit of currency will get you fewer goods and services. Consequently, inflation will result in a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. That is why the money you earn today will be worth less 10 years from now.
  
• Fluctuation in interest rates of deposit accounts - A drop in interest rates means a smaller return on your deposits, and if the interest rate is lower than the rate of inflation, your deposits lose value. But for some types of investments, such as equities and bonds, the value of your investment may actually rise because of the fall in interest rates of deposit accounts.
• International economic trends - What happens in other economies can affect the value of your money. Political circumstances, GDP growth and stock market movements in other countries can all have an impact on the buying power of your money.

Here are some simple guidelines to follow for making wise investments:

1. Set your investment objectives.
2. Do your homework before investing. It's risky to rely on pure luck when making an investment.
3. Ask yourself whether your objective is to invest or speculate.
4. If it's investing, make sure you have a cut-off point in mind to protect your bottom-line.
5. If your objective is speculating, don't make investment decisions out of panic when the market becomes volatile.
6. Invest as much as you can afford, but no more than that.
7. Don't leave money lying around in non-interest bearing accounts, except as cash on hand for a rainy day.
8. Make sure your investment portfolio gives you a big enough return to beat inflation.
9. Always invest through a reputable investment firm or financial institution.
10. Diversify. Invest internationally and spread your investments over a range of low, medium and high risk products in order to hedge against losses.
11. Make sure you understand exactly what risks are involved with every investment you make.
12. If in doubt, seek professional advice.
13. Keep an eye on your investments. Take opportunities and shift products if it is beneficial to do so.

Know your current financial situation. Before you begin to think about investing your money, you should know how much you can afford to spare for investing every month. Naturally, the more you can put aside now, the better it will be for your future. It's up to you to strike a balance between your current lifestyle and your expectations.

Calculate your income and expenses by taking into account the following:

• Home financing payments
  
• Personal taxes
• Other financing payments
• Living expenses
• Emergency funds
• Car expenses
• Entertainment
• Holidays
• School fees
• Family commitments

Generally speaking, whatever spare cash you have after allowing for all your expenses is what you can afford to invest. You can commit a certain amount each month and look at it as a monthly expense. As your income increases, it's a good idea to increase the amount you invest proportionately. By doing this, you'll be keeping up with inflation and your money will be working harder for you.

Once you know how much you can afford to invest, set your objectives - why you're investing and how you're planning to use your investments. Your objectives could incorporate 1 or any combination of the following:

• Retirement
  
• Protection for your family
• Education for your children
• Wealth accumulation

Divide your objectives also into long-, medium- and short-term goals. This will help you choose the type of investment you want to make. For example, if you plan to send your child to study abroad in 3 years' time and you need to save for their tuition fees and living expenses, you'll need a fairly low-risk investment. Think about when you'll need the return as it also helps to determine the time horizon of your investment.

Keeping your objectives in mind, determine how much risk you're prepared to take. Do you want to adopt a conservative, moderate or aggressive investment strategy? Ask yourself the following questions before you make your decision:

• Are you prepared to make long-term investments, which will allow you to take greater risks for higher returns?
• If you're going for short-term, high-risk investments, can you afford to lose some of the money you invested?
• If you're married with children, what level of risk can you take to still be certain of their future?
• If you want your money to be safe, will you be content with a moderate rate of return?
• If you opt for safe investments, will the returns be enough to cover inflation?

Everyone has different reasons for saving, and the purpose of your investment can affect how much risk you’re prepared to take with your money. If your investment is to pay for your children’s education, then you may be investing over a long period of time, and looking for a higher return. As a result, you may be inclined to choose a higher-risk investment option.

Conversely, if you’re investing to pay for an overseas trip or a new car, you may be investing for a short period of time and want certainty about the outcome of your investment, so you may feel more comfortable with a lower risk investment option.

You can choose from 2 main financial products with varying degrees of risk:

• Deposits
  
• Investments

Traditionally, savings accounts are the safest place to put your money. They provide high liquidity - you can quickly and easily retrieve your money - but offer lower rates of interest. Investment products offer potentially higher returns, but also carry greater risk.

One thing to remember about investments is that the level of return is generally proportionate to the level of risk. This is why an investment offering potentially high returns will usually have a high risk element. The products available in the market are:

• Securities/stocks
  
• Bonds/sukuk
• Foreign currency
• Unit trust funds
• Structured investments

Dollar cost averaging is an investment strategy whereby the investor invests a fixed amount in a particular investment on a regular basis, regardless of the price. More units are purchased when prices are low and fewer units are bought when prices are high. Eventually, the average cost per unit of the investment product will become smaller. Dollar cost averaging reduces the risk of investing a large amount of money in a single investment at the wrong time.

As our customer, you may keep track of your investment portfolio via HSBC online banking under the Wealth Dashboard section