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Introduction

We all desire high returns, with as little risk as possible. Unfortunately this is not compatible with the way in which investment markets work. As an investor you are in control of one of the most important variables in terms of investment return – your own saving behaviour. The greatest influence on investment return is likely to be a person’s saving behaviour. There is no investment strategy that will make up for an inability to save. Start early, save regularly, be diversified and re-balance often.

Savings and Investments

Savings means putting some money aside for the future whilst investing refers to what you actually choose to invest in. You can compare regular savings accounts from the main banks to find the best account for you. If you need to be disciplined about this, you can always set up a standing order and this will ensure you save in a disciplined way and on a regular basis. Alternatively, most savings products also offer a direct debit system.

When it comes to deciding what to invest in, you need to think about your attitude to risk and consider what best suits you. Most investors have a desire to put monies away for a one to two years, three to five years, six years to ten or more and it is recommended that you invest accordingly after taking advice. For example, you may decide to put a small amount of money away where you know you can access this on demand and you may also have a substantial amount which you want to potentially earn more by investing in a product which offers potential growth over ten years or more.

Key questions to ask and understand are:

  • What are the risks involved with this investment?
  • What are the costs involved, initially and annually?
  • Do I want a capital guarantee on some or all of the monies invested?
  • Is there a minimum I need to invest in this product?
  • Is there a minimum time I should leave the monies invested?
  • Can I withdraw my monies earlier and if so, is there a cost or penalty to this

Types of Risk

Know the four main types of risk.

1. Inflation risk refers to the risk of your money losing value (or reduced purchasing power) over time. For example a 2% inflation rate will mean that €10 will be worth only €8 after one year

2. Return Risk means the monies invested will not earn as much interest or gains as expected

3. Capital Risk refers to the possibility of losing some or all of your initial money invested

4. Currency Risk means the value of any currency you invest in which moves up or down in line with currency changes

 

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