Why invest? This sounds a pretty simple question but it is sad to note that there
are many people out there who do not understand precisely the meaning of investing.
There are some individuals who invest without knowing the real objectives behind
their own investments.
Investments simply means executing a financial plan or to take advantage of an array
of financial products to help grow your money. There are essentially three main reasons
why you should invest;
- To meet your personal financial goals
which means one should know his or her personal financial needs or objectives before
starting up any investment plan.
- To provide for retirement
which means one should place greater emphasis on long-term financial planning.
- To beat inflation
inflation, the devil of any economy, shrinks the value of our hard-earned money.
What you earn today will likely be reduced in the future.
Different individuals tend to have different financial needs. What are you trying
to achieve? Is your money is working hard enough to accomplish your needs?
Before constructing an investment portfolio, you must be aware of your investment
objective and that any return that you achieve later in the future will meet your
specific investment needs such as financing your house loan, supporting your child's
college fees and your second car.
In short, before investing, you should have a clear investment objective. You should
identify all your financial needs both on the short and long-term basis.
Just imagine the impact of the recent famous "freefall" of the Malaysian
stockmarket that would hit an investor had he or she allocated some funds in the
stockmarket to hunt for "quick" profits.
Although it produces a higher level of retu r n, investing directly into the stockmarket
particularly the smaller companies in the second board normally carries with a higher
level of risk which may not be acceptable to many people.
Thus you should make sure that you know how much risk is associated with the type
of investment that you choose. You should seek to understand the direct relationship
between risks and rewards.