In a world economic situation where people can rely much less on state help and have to be financially stable and self-sufficient until the final years of life, finding the most efficient way to make money work and grow has become a priority, and a headache for many who do not fully understand the variety of ways available to save, invest and protect themselves and their loved ones, and who they can trust to do this work for them.
This could be the reason why bank deposits remain the number one, preferred option for people to save money, especially those with less financial knowledge, despite repeated advice that this is the least efficient way to make money grow.
On opening a recent seminar for small and large investors on how to invest safely and wisely, organised by FinanceMalta (FM), in collaboration with the Malta Funds Industry Association (MFIA), and the support of the Malta Financial Services Authority, the Malta Stock Exchange, Bank of Valletta, MSV Life and Valletta Fund Management, FM and MFIA Chairman Kenneth Farrugia said: “The event addressed typical investments considered by investors such as deposits, bonds and shares. The panel discussions organised during these events also addressed the various ways one could possibly invest in such assets through either collective investment schemes, authorised financial intermediaries or brokerage firms as well as through online trading platforms. The event which is planned to be organised on an annual basis was very well received by the investors present at this conference.”
This is when panic generally strikes in among those who would like to take this advice but do not know who to trust to make informed decisions about the complex financial transactions and/or managing significant pension or invested assets. Most do realise that gone are the days when you hoard money under the floor tiles and live in financial security for the rest of your life.
So where do you start from?
First, if you are not knowledgeable enough to have the peace of mind of relying on your own resources to have financial plans built on solid foundations, seek sound financial advice.
Like you wouldn’t consider building a property without enlisting the help of professionals such as an architect, builder, plumber and electrician, why should you rely on DIY when it comes to financial planning?
There are many bodies, listed in the box accompanying this article, who you can refer to, to ensure you are being guided by the right financial planner. Once you have identified who you are comfortable entrusting your money to, the expert will consider your financial circumstances and objectives and put in place a plan based on the information provided. Along the way, your attitude to risk is assessed and then you are recommended a suitable portfolio of investments based on your risk tolerance, investment horizon and specific requirements.
Many people have the misconception that the purpose of a financial planner is to guarantee a certain level of investment return. Like everyone else, financial planners can’t predict the future, nor can they give any guarantee on investment returns. What they can ensure though is that your monies are invested in a well-diversified portfolio of investments that suits your attitude to investment risk. This will, in turn, give you a better chance of achieving your goals and objectives.
The next important question an investor should ask themselves is: “Am I diversified enough?” With it comes the science bit of balancing return and risk. Different types of investments are affected in different ways by factors such as economics, interest rates, politics, conflicts, even weather events. What’s positive for one investment can be negative for another, and when one rises another may fall. Diversifying reduces your risk and this is the key: you don’t diversify to maximise performance, but to achieve the best balance between return and risk.
To facilitate this, without needing an investor to do it themselves or constantly rely on a manager to keep tabs on investment performance, there are plenty of ready-made, multi-asset solutions that aim to deliver the highest possible return for a given level of risk. In the meantime, always make sure your money is invested in funds that reflect your attitude to risk.
Final word of caution: Just because a lot of people are investing in a particular way doesn’t necessarily mean it’s the right way to invest. The majority can easily be wrong.
Where to look for help
Investors need to be informed enough to be able to decide which investments are available and the risks attached to each type of investment. Furthermore, the investor compensation scheme is limited and therefore, investors need to invest wisely, spreading their risk in contrast with putting all their eggs in one basket. For further information, refer to the following financial bodies:
· FinanceMalta www.financemalta.org/, 21 224 525
· Malta Funds Industry Association mfia.org.mt/, firstname.lastname@example.org
· College of Stockbrokers email@example.com
· Consumer Complaints Unit, Malta Financial Services Authority http://www.mymoneybox.mfsa.com.mt, 21 441 155
· Association of Insurance Brokers www.aibmalta.com/ , 21 235 606
· Malta Bankers’ Association www.maltabankers.org/ , 2141 2210 / 2141 0572
· Malta Stock Exchange www.borzamalta.com.mt/ , 21 244 051
· Malta Association of Small Shareholders mass.org.mt/ , 21 576 411