TIPS FOR INVESTING WISELY
Know What Investment Products are Available:
The following types of securities are available on the stock market for investment:
• Ordinary shares of listed companies
• Unit trust schemes
• Mutual funds certificates
• Corporate bonds i.e., Term Finance Certificates (TFCs)
• Government securities i.e., Federal Investment
Bonds(FIBs), Pakistan Investment Bond (PIBs) and Special US Dollar Bonds.
Know Your Investment Profile:
A wise investor chooses an investment product not only according to his goals and the amount of capital available but also according to his tolerance for risk. All investments carry a certain degree of risk. You have to determine whether you are a “risk-taker” or a “risk-averse” person. Depending on the extent of risk you intend to take, you should pursue an investment strategy (aggressive, moderate or conservative) that fits your risk profile.
Do Your Homework Before You Invest:
Don’t put in your money until you have understood all relevant information regarding the investment. Prepare yourself for the vigorous homework of analyzing company’s annual reports, accounts and other statements while keeping abreast of what’s happening in the industry, country and elsewhere that may affect your investment. Consult your investment adviser/broker to get latest market information about shares you intend to buy or sell. Be skeptical of anything picked up from rumors, particularly if you cannot rationally explain their choice.
Bear in mind that even in the best of securities/shares, there can be short term aberrations. It is important to have the power to hold your investments for longer periods. Studies have shown that investments properly timed and based on strong fundamentals have been very profitable for investors in the longer term.
Avoid Putting All Your Eggs In One Basket:
The best way to minimize risk is to diversify your investments across various investment products. If equities are your sole investments, it makes sense to diversify between different companies and sectors. In this way, loss made on some investments can be absorbed by gains made in others, keeping the overall return on investments positive. You can also diversify your investment by investing in open-end funds managed under various unit trust schemes. While investing in mutual funds check the rating of the instruments. Similarly while investing in any security please check the rating if any available.
Beware of Scams:
Beware of promises of quick profits or sky-high returns. Remember:higher the gain on investments, higher is the risk involved. This is the fundamental risk-reward trade-off.