Investing is about making choices. How can you strike the right balance between risk and return? How do you know what type of investment is safest?
What does safe investing mean?
The answer to that question is different for everybody. It all starts by mapping out your own 'playing field'. What is your financial situation? What knowledge and experience of investing do you have? How long can you do without your money? And above all: what is your investment objective?
Your answers to these questions will determine the degree of risk that you'll want, or be able to take. After all, investing can involve a large degree of uncertainty.
First of all, you should determine your risk profile based on this simple questionnaire. It is important to draw up your risk profile first in order to determine what type of investor you are and to what extent you can include riskier investments in your portfolio. This is the starting point for investment advice tailored to your needs.
Product awareness questions
The product awareness questions allow the adviser to explain the product to you, as well as its associated risks and potential returns. The adviser will gauge whether you have sufficient product awareness by asking a few questions.
Large product range
Once your profile has been determined, you can decide what types of investment are eligible for building your personal portfolio. The range of investment products is very extensive, and each product comes with its own characteristics and risk class. You should therefore ensure that you are thoroughly informed in advance.
The relationship between investment and return
Something that goes over many beginner investors' heads is that their final return is largely determined by the mix of shares, bonds, real estate and cash they choose. It is therefore a bad idea to fill your entire portfolio with just one particular type of investment in the hope that this will provide the best return in the long run.
Diversify your investments
The financial markets are sometimes volatile and not always predictable. This is why one of the most important pieces of advice for investors is: don't put all your eggs in one basket. This ensures that your return doesn't depend on just one investment product, and prevents your entire portfolio from being impacted when that specific investment performs badly.
The key message is therefore to diversify your investments, primarily across several asset classes such as shares, bonds, cash and real estate.
How should I diversify my portfolio?
In principle, you can diversify your assets yourself; however you can quickly run into high costs if you choose to buy individual shares and bonds on the stock exchange. Mixed investment funds can provide an alternative to this. Thanks to its size, a fund of this kind can bring different types of assets together, diversified across a number of different firms, sectors and countries. That makes it well-diversified by definition, and results in lower costs for the individual investors who sign up to the fund.
It is trickier to know when you should invest more heavily in one investment type than in another. That requires knowledge, experience and a little luck, as investment is not an exact science. However, an effective investment strategy can provide a helping hand, and your contact person in-branch can also certainly offer you help with this.
Whatever your approach, you should always choose a solution that matches your investor risk profile, gather enough information, ask for advice where necessary, and ensure that you diversify your investments sufficiently.