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Investments - Faqs For New Investors
What is fixed interest? Fixed interest describes fixed term deposits like bank deposits, cash management accounts, debentures as well as bonds like government stock and company bonds. Fixed interest investments pay interest, usually every six months or quarterly. On maturity the investor is paid back what they invested. Fixed interest is a very good investment, especially for people looking for a low risk investment and a reliable source of income. The major disadvantage with fixed interest is that the returns from it are relatively low and therefore it provides little protection against inflation. What are equities? Equities is another name for shares. The word equity is derived from the latin word aequitas, meaning equal ownership. This aptly describes shares, which are essentially part ownership of a company. For instance, if a company has 100 shares in total and you own 10 shares, you own 10% of that company. Why does everyone worry about inflation? The goal of investment is to ensure you can maintain your standard of living in 20 or 40 years time. To do this, the value of your savings must rise at least in line with inflation, which really is just a measure of how much prices are rising. What is a balanced portfolio? We often advise people that if they do nothing else, at least diversify. A balanced portfolio is nothing more than a spread of investments. List all your investments under four headings: fixed interest, local shares, overseas shares and property. You should have some money invested in each. How you split your funds between each sector depends on your appetite for risk, how long you are investing for and your investment goals. Your investment adviser can help you make these decisions. How do I avoid fraudulent or dubious investments? The old adage that “if it sounds too good to be true, it usually is” is a very, very useful rule when it comes to investing. Over the long term,equities provide a return of around 8% per annum, fixed interest around 6% and property around 9%. Be very wary of investments that advertise far higher returns than this. The biggest mistake new investors often make is to be lured to fast returns. Be very honest with yourself when considering investments; ie. recognise when greed is taking over your decision making! It is a good idea to seek professional advice before jumping into an investment. Remember, it’s your money and there is no need to rush into any investment. Why do some people invest outside New Zealand? Not only is New Zealand the very best country in the world, it is also one of the smallest. Our economy and share market are relatively vulnerable, as is our currency. It is sensible to therefore have some funds invested outside New Zealand, especially as most of the goods we buy every day are either imported or priced by forces outside New Zealand, therefore a lower New Zealand dollar makes overseas goods more expensive.Investing funds offshore helps to smooth out the impact of movements in the currency. Everyone talks about the long term – what is the long term? When investing in growth investments like equities you need to give them time to work for you. Shares go up and down in the short term but over the long term this volatility smoothes out. The long term should be at least 20 years. This may sound awfully long, but consider if you are 40 years old and are investing for your retirement, you could easily be a holder of your shares for 40 years or more. Article Directory: http://www.articledashboard.com This is a modified article from Cam Watson. To read the complete article visit www.craigsip.com Craigs Investment Partners Limited (formerly ABN Amro Craigs.) is an NZX Firm that was established in 1984. It is one of New Zealand's largest and most established investment advisory firms. Craigs Investment Partners is 100% owned by certain staff and close business associates. |
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