Home > UTC Media Centre > Investment Segment > UTC Investment Segment Article – Debunking Investment Myths

November 14th, 2012

UTC Investment Segment Article – Debunking Investment Myths

 

Debunking Investment Myths

Many people go about investing in sporadic fashion, without considering their goals, time horizon or risk tolerance.  Once this happens, it is easy to  fall prey to myths that are perpetrated by the ignorant and foolish.  The result is bad investment decisions  that can leave an investor jaded.

Here a few myths that need to be put to rest:

I am too young to plan for retirement

“I’m too young to be thinking about retirement,” is the saying of many young people. However, you should start your retirement planning from the day you receive your very first paycheck. While many of us don’t start the planning process at this time, it’s never really too late to get going. Unless of course you wait until the day you plan to retire. Retirement is one of the most important life events many of us will ever experience. From both a personal and financial perspective, realizing a comfortable retirement is an incredibly extensive process that takes sensible planning and years of discipline. Even when it is reached, managing your retirement is an ongoing responsibility that carries well into your golden years. UTC’s Universal Retirement Fund (URF) or the Individual Retirement Unit Account (IRUA) are ideal vehicles to consider as part of your retirement planning. They can provide the keys to dealing effectively with the prospect of retirement and old age by allowing an investor to maintain an investment portfolio that provides financial options in the golden years.

I can never be as good as Warren Buffet so why try?

Warren Buffet, billionaire chairman of Berkshire Hathaway Inc and widely-acclaimed investment guru once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”  It simply means that investing is a long term process and the benefits are not necessarily going to accrue to you in the short term.  Once you know the basic asset classes you should invest in as well as your risk tolerance and how much of your funds should be allocated to each, picking the right investment becomes the final step.

What you need is the temperament to control the urges that leads to investing in an ad hoc manner. Remember,  by making a prudent assessment of your financial condition and allocating assets in line with the level of risk you are willing to take,  you can take away some of the fear associated with investing.  If you don’t have enough time and expertise, then you can get assistance from a professional financial planner.

Diversification does not work

That is a most uninformed and misguided view. The key to investing is to ensure that your portfolio is well diversified and one avenue is through a mutual fund, which typically invests in a diversified portfolio of stocks, bonds and cash or short term deposits.  Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of any one asset class or security, so if one asset class or security underperforms the others can offset the impact.

An investor who wishes to focus on maximising growth should consider the UTC’s Growth and Income Fund and Universal Retirement Fund. These are designed to provide diversification to an investor’s portfolio and offer potential for long term investment growth.  Diversification involves not only investing in equities but also fixed income instruments : Treasury Bills (T-Bills) and high-quality bonds via bond or income mutual funds, such as the UTC’s Global Bond Fund and UTC’s US$ Income Fund.  These are designed to provide diversification to an investor’s portfolio and offer potential for current income.  As a general rule, it’s never a good idea to put all your assets and all your risk in a single asset class or investment. You will want to diversify the risks within your investments by creating a portfolio comprising several asset classes.

Stock markets can earn me quick money

This is a common myth among investors but making money on the stock market is no child’s play. Trading stocks requires a substantial amount of study and understanding, before you put your hard-earned money on the line and begin making profits. There are no shortcuts to riches and the same applies to the stock market.

Investing on the stock market is often considered riskier than some other investments. The reason for this is that share prices rise and fall as economic and market forces change. Once the shares are listed on the securities exchange, investors are exposed to the unpredictable nature of the stock market as the share price will be determined by the forces of demand and supply.

As a shareholder, you can minimize your investment risk by diversifying your investment portfolio.  To protect your investment you should avoid putting all your “eggs in one basket”. When one company’s share price doesn’t perform well, you can still benefit when the share price of other companies do well.  Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of one any asset class or security, so if one asset class or security underperforms the others can offset the impact.

At the Unit Trust Corporation, the Growth and Income Fund (GIF) is invested in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities, and is specifically designed as an efficient investment vehicle that provides the investor with the potential to earn capital growth and dividend income.