Wednesday, November 18, 2009

HOW MUCH SHOULD I INVEST?

Do not put all your eggs in one basket - make this your guiding principle. No matter how attractive the stock market is right now, you should not put all your money there. It is not worth sacrificing the benefits of the diversification for the sake of quick returns when things do not go according to plan. It is also important to set aside a portion of your money for the rainy day.

Typically, an emergency fund should be able to sustain you for three months worth of expenses - payment on mortgage, other scheduled payments, insurance premiums and essentials. This fund should be placed in a bank account or as a fixed deposit so that you can use it when the need arises. Although the rates are low, capital security for your emergency fund should be given the highest priority. Remember, your debtors will still come after you regardless of how the market is doing.

After you have set aside an amount for the fund, you may have additional funds available for investment. These funds could be significant amount of your assets. they may include the funds that you will only need to tap into in the long term such as funding your child's education 15 years from now, and your retirement fund.

Having said that, you might choose not to put everything into the stock market. It depends on the level of risk that an individual is willing to take. If you are an aggressive investor with high risk tolerance, you will commit more funds into equities. Conversely if your risk tolerance is low, you should be more conservative and commit less to equity investments.

One rule is to invest the amount that you can afford to lose. I am not saying that you will lose everything when in equities. This rule serves to put you in the right perspective when considering your options. Also investors should not be ultra conservative as the cost of financial security in the long term will be very expensive.

I have highlighted the risks associated with direct investment in the stock market and the necessary level of exposure to be considered. It is important to remember that no one can afford to lose everything. Investment selection is an integral part of an individual financial plan. One wrong step can prove devastating. For first time investors, consider your options carefully and see it as your big 'financial picture' because no investment is worth losing sleep over. For seasoned investors, you have seen it happen. So do get it right this time.


KHAIRUL IDZWAN IDRIS

Timbalan Pengerusi
Biro Ekonomi Dan Pembangunan Usahawan
Pergerakan Pemuda UMNO Bahagian Setiawangsa
Wilayah Persekutuan

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