Financial Goals Conflict | Know Your Investment Goals
If you are a smart investor who knows how to manage personal finance, you must be aware that putting money in fixed deposit (FD) is not the best saving method in terms of investment view. In fact, all investors should target for better returns and realistically correspond with the risk they are willing to accept.
Know Your Investment Goals
The most important recipe to gain success in long-term investment is to know your investment goals. The failure to understand your own investment goals and the nature of investment products often caused one’s investment portfolio to perform poorly.
You must ask yourself a few questions before making the decision to invest in stock market, unit trust (mutual fund) or real estate property. For example, when you decide to buy a new house; you will be aware of conflicting goals such as when is the great time to buy or rent a house.
Most investors has high expectations in their investments. They want to enjoy high capital growth possible and yet do not wish to lose money. That means they wish to preserve their initial capital and still achieving growth in their investment at the same time. In this case, they need to reassess the conflicting goals as there’s no free lunch in this world and If you really want to achieve high returns in your investments; you need to take some risks within tolerable limits.
Expectaction and Basic Investment Goals
First of all, you need to understand about your investment goals and ensure that there are no conflicting goals in your expectations of investment results. Let me give you a simple example which can apply to unit trust investments:
There are 3 common investment goals for every investor.
1. To achieve capital growth through capital gain.
2. To receive regular income (unit split, dividen)
3. To Preserve the initial capital.
After you determined investment goals, you should find out the type of unit trust funds that can fulfill your investment goals. In order to achieve capital gains, you should choose equity funds. Bond funds are managed to provide regular income while money market funds and capital guaranteed funds are designed to preserve your capital. If you wish to preserve capital, I suggest you go for the capital guaranteed funds or fixed deposits.
I’m In Dilemma Now. What Should I Do Now ?
So, have you figured out what type of investments suitable to your investment goals? The truth is you cannot get more capital gains without taking risks. Therefore, you must know the purpose why you need to invest? Is it for retirement plan or to fund your children’s education. For example: if you are planning to fund your child’s education in 20 year’s time, you must identify the right unit trust fund which provides steady and high returns in order to reap enough money by the end of the mature period. However, if you main goal is to preserve capital, then you should prepare to enjoy rather low growth in capital gains because capital preservation is the absence of risk.
How To Escape From Financial Conflicting Goals ?
Ask yourself 3 simple questions first:
1) Are you ready to keep the funds locked over a period of 3 to 5 years?
2) Will the annual return be sufficient to cope with inflation in the next few years?
3) Do you understand that it’s hard to enjoy great capital growth at the same time to preserve initial capital?
If your answers are YES, then you are good enough to manage personal finance and invest in Unit Trust funds. But if the answers are NO or Unsure, please don’t hesitate to consult your unit trust consultant or personal financial planner to assist you in deciding the perfect investment tools.