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May 5th, 2014

Thinking Stocks? Think Diversification


I have heard the stock market is a good way to make money. Is this true? My friends say it’s a good investment.

There are no shortcuts to riches and the stock market is no different.  Deliberating on whether or not to enter the stock market is something every investor encounters and like every major financial decision has to be carefully weighed.

You have the opportunity to invest in shares by participating in the TTSE (Trinidad and Tobago Stock Exchange) where regional and local stocks are traded in some of the largest and most profitable companies in the country and in the region. Share ownership provides you with the opportunity to earn extra income from dividends, which are paid out of the profits of a company. When you buy a stock, you actually own a piece of the companyissuing the share.

But making money on the stock market is no child’s play. Trading stocks requires having a good understanding of financial statements, market trendsand sector performanceand is not for the faint-hearted.

Why?Because shares listed on the stock exchange are exposed to the unpredictable nature of the stock market as the share price will be determined by demand and supply.The best way to hedge against this is to have a diversified investment portfolio with stocks being a part of it.It is stronglyrecommended not to put all “your eggs in one backet.”

At the Unit Trust Corporation, diversification is woven into our investment decisions,and in this way,we are able to navigate the stock market, offering protection to investors and reduce your exposure to the volatility of stocks.

Our Growth and Income Fund (GIF), invested in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities,is specifically designed as an efficient investment vehicle that provides you with the potential to earn capital growth and dividend income.The North American Fund (NAF), another UTC investment vehicle, gives investors a diversified equity portfolio by providing the opportunity to hold shares in companies across North America.

Such diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of any one investment – so if one asset class or security underperforms the others can offset the impact. For the novice or savvy investor, you have peace of mind knowing that when one company’s share price doesn’t perform well, you can still benefit when the share price of other companies do well. 

Tips on Investing in Stocks

  • Education is key

The first thing you have to consider is how well are you informed about the stock market. For beginners who have little knowledge about what the stock market is all about, you are strongly advised to gather and assimilate as much as you can.

  • Take your time

You may be tempted to jump into the stock market because the share price on a particular company may be soaring. That is dangerous, as you could easily lose your investment with knee-jerk decisions. Plan for the long haul when investing on the stock market.

  • Mutual Funds –Don’t put all your eggs in one basket.

It is a surefire way for investors to participate in securities markets without having to buy and sell stocks, bonds, and other securities directly.

Investing in stocks need not be an intimidating experience as long as you follow the above principles.  We at the Unit Trust stand ready to offer you our assistance in building your equity investment portfolio.