Assessing your finances is critical before investing, says JN Fund Managers
DELORIES JONES, senior vice-president for sales and marketing at JN Fund Managers, recommends that before you invest for the long haul, you should do an assessment of your finances to know how much money is available to invest.
“It wouldn’t be prudent to put money in an investment portfolio until you have gone through a comprehensive financial planning process,” she advised.
Jones made the recommendation within t he context of Financial Literacy Month, being observed in April.
She suggested that one should begin by reviewing one’s assets and debts by setting up a reasonable debt management plan, factoring in how much is required for an emergency fund, as opposed to an investment fund.
In addition, a clear understanding of one’s risk tolerance will assist in determining what investment options to venture into, based on the risk factor associated with each of these investment option.
“By first undertaking this assessment, with the assistance of a licensed financial adviser, if this is required, this will ensure that one’s funds are invested in the appropriate investments options,” she said.
Jones cautioned that withdrawing funds early from long-term investments jeopardises one’s goals and poses other financial challenges, such as additional fees and taxes.
She recommended the following strategies:
KNOW YOUR GOAL AND TIMELINE
Everyone has varying investment goals, with some common ones being retirement planning, paying for your children’s university education, and purchasing a home.
“No matter what the goal, the key to all long-term investing is understanding your timeline. Typically, long-term investing means five years or more. By understanding when you need the funds you’re investing, you will have a better sense of suitable investments options to choose from and how much risk you can afford to take on,” she said.
PICK A STRATEGY AND STICK WITH IT
Jones noted that once you’ve established your investment goals and timelines, you should choose an investment strategy and stick with it. It may even be helpful to break the overall timeline into segments to guide the choice of asset allocation.
She stated that based on the target date of goals, one can categorise one’s investment goals in a similar fashion. For example, one could have a fiveto 15-year goal; a 15- to 30-year investment plan, or one that is more than 30 years, especially in the case of younger investors.
FAMILIARISE YOURSELF WITH INVESTMENT RISKS
Jones warned that to avoid knee-jerk reactions to market volatility, one must be sure to understand the risks associated with investing in different assets before buying them. However, this does not mean you should not take the time to read the market after investing, as market trends can change over time.
“Consulting with your financial adviser can assist you in this process,” she informed.
Stocks, she said, are riskier investments and recommends trimming stock allocations as one approaches their goal.
DIVERSIFY FOR SUCCESSFUL INVESTMENT
The JN Fund Managers’ adviser said that spreading one’s portfolio across a variety of assets classes allows one to diversify one’s portfolio, thereby ensuring a healthy mix of assets which reduces volatility in your portfolio.
DIVERSIFICATION VIA MUTUAL FUNDS
She explained that to improve diversification, one may choose to invest in mutual funds instead of individual stocks and bonds. She said mutual funds provide the advantage of easily building a well-diversified portfolio with exposure to a wide range of stocks and bonds. In addition, JN Fund Managers Mutual Funds are managed by professional fund managers.
“We encourage you to speak with your financial adviser, who will provide guidance in this process of building a winning investment portfolio,” Jones said.