Investment

Investment in the financial market is the placement of your disposable funds in various financial instruments with the aim of earning a profit from the margin between the buying and selling prices of such instruments or interest or dividend income from the investment. An important characteristic of an investment is the risk involved.

As a general rule, the higher the potential for returns, the greater the risk of high volatility in investment performance, which may lead to a financial loss. If you invest in financial instruments, you may lose part or entirety of the funds you have invested. If you save with a bank, the amount saved will be repaid to you in full, plus the interest accrued.

If you decide to invest, you should spread your money across different types of investments with different risks in order to reduce your overall risk. This can be achieved by investing in a portfolio consisting of several distinct types of financial instruments. A well-diversified investment portfolio will ensure that the loss you may incur on one investment will be covered by returns earned on other investments. Through portfolio investment, you may reduce the risk of loss and increase the rate of return or to ensure stable returns.

It is, however, practically impossible for a non-professional investor to create a suitable portfolio and to decide which financial instruments should be bought or sold and when. Large professional investors have teams of professionals and sophisticated computer programs using a huge amount of information for this purpose. Hence, the best way for you to make a decent portfolio investment is to purchase investment fund shares/units. This form of investment is called ‘collective investment'. Investment fund shares/units and other collective investment securities are commonly available at banks and investment firms. If you have ever been offered an investment opportunity, you were probably offered portfolio investment through an investment fund.

Before you decide to make an investment, on your own or through a professional investor, you should answer the following questions:

1.      Will you, in the near future, need the money you intend to invest? For example, for the purchase of a car, home improvement, etc.

2.      Will the money you wish to invest be missing from your family budget (in the event of unexpected household expenses, for example)?

3.      Are you willing to accept the risk of potential loss with your investment? If yes, how much are you willing to risk?

To make a reasonable investment with a decent profit, you have to devote part of your spare time to that investment, too. When considering the form of investment, you must know what you want to achieve by that investment, when you expect returns, and how much are you willing to risk with your investment. You will be asked these questions by any investment firm you contact (they are required to do so by law). On the basis of your answers, they will recommend you an investment solution tailored to your specific needs.

After you make an investment, you should continuously monitor the state of your investment, especially the prospects for returns or losses. If you make any decision concerning your investment, do so with a cool mind, courage and determination, rather than on the basis of your emotions and instincts.

What you should pay attention to as a new investor?

- When asked to complete an investment questionnaire, enter only truthful information - there is no point in pretending to be an experienced investor unless you really are. Hence, provide truthful information only; it is not a shame to have no experience in investment. Only truthful information will prevent you from making a bad investment.

- Do not sign anything automatically and do not buy something you know little or nothing about. Pay attention to declarations. Where a declaration states that you request a certain investment which is not advantageous for you, be very cautious.

- Ask a lot of questions about everything you are interested in or you do not understand. You should decide only after having been informed about all aspects of your investment (e.g. the investment horizon, the minimum amount invested, the risk involved, fees and costs, expected returns, etc.).

- fees - investment firms charge fees for every single purchase or sale of securities. The more you buy or sell, the more you will have to pay. Inform yourself in advance of all the fees you will be charged in order to avoid surprise in the future.

- compare several investment firms, the products and services they provide, and the fees they charge.