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What is Investment? |
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Investment is a saving activity aimed at generating certain types of RETURNs against certain corresponding types of RISKs. |
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How Much Should You Invest? |
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According to World Bank study, monthly retirement expense should be 2/3 of your salary in order to maintain the same living standard. Two key factors to maximize your investment potential are Time and Amount. |
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Understand RISK |
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Every investment involves some kind of risk. Obviously, understanding risk is essential to investment success.
Investment Risk - The chance you take on how much an investment will go up or down in value, especially over a shorter period of time, also referred to as Volatility. Historically, greater returns come from higher risk investments.
Inflation Risk - A risk your savings may not keep up with the rate of inflation. Statistics show inflation rate has been fluctuated from above 10% in early 90s to around -5% in 1999. That is why we cannot predict the future. |
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How to Manage Risk? |
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Diversification is the key
Diversification is the concept of spreading your money among different investment options to reduce your overall risks. If one investment option performs poorly, it only affects a small part of your total investments
Asset Allocation is a good way to achieve diversification. It divides your money among a mix of investments across risk categories
Time Horizon affects your asset allocation strategy. The longer your contribution time, the more risk you may be able to accept. So consider the amount of time you have until you retire.
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4 Questions You Should Ask Before Invest |
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i. What are your retirement goals? |
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(Travelling worldwide? Staying with your family? Living elsewhere?) |
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ii. How much time do you have until you retire? |
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(You are: a new entrant into work? at your prime? nearly retired?) |
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iii. How much risk are you comfortable with? |
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(Conservative? Moderate? Dynamic?) |
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iv. How much other sources of income do you have? |
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(A wealthy family? Large bank account? Not much?) |
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