|
If you are looking to make savings into
a long term insurance savings contract,
such as a Retirement Plan, then you will
need to decide where to invest the money.
Most long term contracts will offer you
a range of options, typically through Collective
Investment Schemes. Such Schemes will pool
together money from different investors
which is then invested by a fund manager.
They can invest in a variety of assets as
detailed below:
Equities (or shares) - which involve owning
a share of a company
Bonds - which are company or government
debts
Cash - such as deposit accounts with banks
Property - such as residential and commercial
buildings or property-related shares
These "asset classes" perform very differently.
While history shows that higher risk assets
(such as equities and property) tend to
perform best over the long term, each type
of asset can be appropriate at a different
stage in your life. |
|
Deciding where to invest your hard earned savings depends on your attitude to investment risk and how long you are investing for. Generally speaking the longer you are invested for the greater the potential gains from equity markets; however you also need to consider what your attitude to risk is.
|
|
There are several types of investment risk, but most people are concerned with market risk, i.e. the possibility that you might not get back the amount you originally invested. With most investments you will need to tolerate a certain level of risk, but this will be balanced by the possibility of your investment increasing in value. Risk is a very personal thing - what may be a small amount of risk to one person may be huge to another.
It's important to remember that risk and reward generally go hand in hand. The more risk you are prepared to take, the higher the potential reward. If you are not prepared to lose any of your money under any circumstances then you have to accept a lower level of return.
The following chart shows asset risk and return. Generally the lower the risk, the lower the potential reward:
 |
For illustrative purposes only |
The important thing to remember is that
with investments, even if your investment
goes down, you will have only actually
made a loss if you cash it in at that
time. When you see your investment value
fall, this is known as a paper loss as
it is not a real loss until you sell.
Risk needs to be managed carefully since
it cannot easily be avoided.
|
|
If like many people you prefer to hold your investments in cash then you should
consider the effect of inflation over
time. If you keep your money in a bank
deposit account paying 4% interest, then
an inflation rate of 2.5% will mean your
money is only growing by 1.5% in real
terms. Worse still, if you prefer to hold
cash, rather than use a deposit account
then the real value of your savings would
actually fall by 2.5% a year.
Over time inflation is one of the biggest
risks to your investments and you need
to ensure you have an investment strategy
that can cope with it. Even cash
held at the bank is at risk, since its
real buying power can be eroded by inflation.
|
|
The higher the risk you are prepared to take, the more money you could get back over the longer term. However, nothing is guaranteed and you could just as easily receive back less than you invested. Taking any kind of risk with your investment can be a difficult idea to accept. However, millions of people do it because they appreciate that the greater the risk, the greater the potential return in the long term. Always remember that past performance is not a guide to future returns and investments can go down as well as up.
If you are not comfortable with some types of investment it is probably best not to include them in your plan. The most important thing is that the investments suit you and what you want to achieve.
|
|
Risk can never be eliminated but it is possible to manage it, by diversification - spreading your risk. Different investments behave in different ways and are subject to different risks. Putting your money in a range of different investments helps reduce the loss, should one of them fall.
Research has shown that diversification is by far the most important factor in determining investment returns, and that we should invest in a broad range of asset types.
|
|
As your retirement may be many years away you might be able to afford to take a larger degree of risk than you would
consider for your shorter term savings. In the earlier years you might like to invest predominantly in
higher risk assets, such as property or equities which give you the potential for the greatest long term growth. As you approach retirement it's sensible to reduce the
amount you are invested in higher risk assets in order to lock in any gains already made and to reduce the
risk that your assets will decrease just before you retire.
If you are not comfortable with changing
your investment strategy over time you might
suit a fund that will do it automatically
for you.These funds are commonly referred
to as Lifestyle FundS. These types of funds
typically aim for a set date, with the fund
manager changing the mix of assets depending
on the amount of time remaining.
These portfolio examples are purely for illustration purposes and you should consider your own
circumstances and attitude to risk.
|
|
The New MSV Retirement Plan offers a wide selection of Unit Linked Funds through
Fidelity and Valletta Fund Management, as
well as access to the MSV With Profits Fund.
View available funds and fact sheets
|
