by Reem Asaad
We often talk about the benefits of saving and accumulating money in a bank account or at home. This is a great starting point to building wealth.
|In fact it takes enormous amount of discipline and perseverance if one was not trained to “behave well”with money at an early age. But what’s next? A rule of thumb is that inflation (the increase of price of goods and services) eats into our savings. In simple words, as time passes, the “purchasing power” of our money declines and we are no longer able to purchase the same amount of goods or services at the
same price a year ago. So, in order to combat inflation, the savings must be invested appropriately in order to preserve (or gain) value.
But how do you go about this?
|Some of the most common questions here include:• How do I invest?• What is a good investment for me?
• Should I opt for real estate or stock?
• Which stocks should I select?
• What do you think of gold as an investment?
These are just some of the questions. Most investing starters get ahead of themselves, which is what the @Nasi7atReem initiative deals with frequently.
The investing process can vary in complexity but there are rules and guidelines too. So if you are a starter it would help to follow these steps:
- Identify your investment objective: In other words, determine your goal. Why do you want to invest? The first obvious answer is to grow your wealth (or “capital appreciation” in finance lingo). There are other goals including obtain regular income, maintain liquidity, and preserve capital against inflation. Each one of these goals will be analyzed further to detect if it is really suits your needs and lifestyle. A professional adviser can help you through this exercise.
- Investment horizon: This is the total time period an investor expects to “be in” the investment. This is very important when determining suitable tools and selection.
- Required return: It’s about the percentage return that an investor wishes to achieve in any given investment plan. This can be different from a realistic expected rate of return.
- Risk Tolerance: This is about how much risk you can bear in order to achieve the stated goals. An investor’s tolerance to swings in the value of an investment varies from one person to another.
The answers to all these questions constitute a preliminary “Investor Profile” which can be further tuned to design an optimal investment plan. In the coming issues, I will zero in on more details related to the “Investor Profile.”
Reem Asaad is an inspirational Saudi woman. She is a wife, mother, writer and financial adviser.
Asaad was ranked the third most powerful Arab Woman in 2012 by Arabian Business Magazine.
Instagram & Twitter: @Nasi7atreem