Investment Tips For Beginning Investors
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| Investment Tips For Beginning Investors |
If you feel cheated, disappointed and frustrated by the insignificant returns on your savings accounts, then you might probably be wanting to give investment a first time trial and make your first move into the stock market.
- Investment Is Not Only for The Rich
You probably don't need to have a huge and fat bank account balance to pave your way onto the stock market. Most investment funds will accept monthly deposits of GHC 50.00 or lump sums of between GHC 500.00 and GHC 1,000.00. You do, however, have to be able to keep up with a good attitude of watching your savings fall in value as well as rise.
Investing is a long game, so you must be prepared to lock your money away for a minimum of five years, ideally a decade or more. It is therefore best suited and highly rewarding to those with long-term financial goals, for example saving for retirement or a child's education, rather than a house deposit or a new car.
- Avoid Recklessness
Gambling your money on unpredictable markets can be nerve-wracking. However, history has repeatedly shown that over the long term equities outperform cash savings. This is hardly surprising when you consider the pitiful returns offered by banks and building societies on savings accounts at the moment.
- Investors Receive Tax Benefits and Incentives
Section 10 of Act 592 Amended of the Internal Revenue (Amendment) Act, 2007 provides for full tax exemptions for investors in respect to corporate income tax, dividend tax and capital gains for 5 years.
In addition, financial institutions and investors which invest in Venture Capital Funds will receive a chargeable income tax equal to 100 percent of their investment.
Furthermore, losses from disposal of shares or any investment made during the tax exempt period may be carried forward to the post exempt period up to 5 years. Foreign investors are offered no restriction on the repatriation of profits and dividends out of Ghana.
- Have In Your Mind What You Want To Invest In
Cash is traditionally seen as the least volatile asset class, your money is safe unless a bank or building society goes bust. But as shown in point two, its buying power can be eroded by inflation so you end up losing money in real terms.
Fixed interest investments, which are loans to companies (in the case of corporate bonds) or governments (known as government bonds), provide relatively moderate but reliable returns and are traditionally regarded as less riskier than equities.
However this risk profile is changing and when interest rates start to rise their prices could fall and the risk of capital loss increases.
Shares, also known as equities, offer a stake in a company. Shares tend to rise in value when a company does well and fall when it does not.
- Diversify Your Portfolio
Do not put all your eggs in one basket. If you funnel all your hard-earned cash into shares in one company and the company tanks, you will lose it all. The idea is to 'diversify', which involves dividing up your lump sum across a portfolio and investing portions into varied companies, asset classes or global markets.
As some markets fall, others will rise and cancel out losses. How you spread your money will be led by your attitude to risk. Low Risk lover investors shouldn't have too much in equities.
- Start Investing Through Mutual Funds
You can buy shares directly but this can be expensive, difficult and risky. For a beginner, it's usually better to invest through a collective fund, which offers an affordable way to buy up lots of different assets without the responsibility of making your own investment decisions. In the most popular type of investment fund, such as a unit trust or open-ended investment company (OEIC), you buy units and your money is pooled with others.
A fund manager then uses their expertise to buy and sell shares (or bonds) on your behalf to maximize returns for investors. There is a charge for investing in funds, but because you are spreading the cost with your fellow investors, it works out much cheaper than it would be for you to invest in the same shares yourself.
- Take Your Time to Choose The Right Funds
There are more than 2,000 different unit trusts and OEICs, so you need to do your homework to pick one that meets your financial goals and suits your appetite for risk. The funds invest in more than several sectors, categorized by asset class (equities, say, or fixed-income); geography; sector type, such as technology or property; and investment style such as growth or income.
Monitor the performance of a fund over a period of time, five or seven years, rather than just looking at whether a fund did well last year. Remember you are playing a long term game.
- Invest Regularly to Minimize and Even Out Your Losses
It is impossible to pick the perfect moment to invest to beat the market. Improve your chances of maximizing your returns by drip-feeding your money into a fund on a regular basis, for example once a month, rather than investing a lump sum at a go. You buy fewer shares if you catch the market when it is rising but you can buy more at cheaper prices if it is falling, averaging out the overall cost and risk.
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