You should already have an idea of your investment objectives, risk appetite and investment horizon. If these terms sound unfamiliar to you, refresh your memory here.
But where are you going to invest? What are the financial instruments available? What types of assets are best? What can you afford? To make the optimal investments in line with your investment objectives, you will need to understand the characteristics and shortcomings of the asset by class, we call these asset classes.
Understanding Asset Classes
An asset class refers to a group of investment options that exhibit similar characteristics; return, risk, time horizon.
Asset classes are the building blocks of a good investment strategy. Your first step is to look at the asset class you wish to invest in, then you look at the investment options under the asset class is chosen. Choosing the right one depends on your needs and preferences. Broadly speaking, there are five asset classes –
|Fixed Income |
Now you know about the asset classes, you can allocate your money respectively to suit your investment objectives. However, no single asset class is likely to meet your financial goals and risk-return preferences; a combination of these – typically in a financial instrument known as Mutual Fund – can cover your needs and expectations.
A mutual fund is an investment vehicle that pools money from investors who share a similar investment objective and invests the money in equity, bonds, cash and cash equivalents, or other securities.
Mutual funds offer many benefits to help you meet your investment objectives.
|Common concerns||Benefits of Mutual Funds|
|I want to make an investment but am too busy with work or lack expertise to manage them||Professional management|
|I cannot afford the minimum initial investment requirements to purchase company stocks and bonds directly.||Affordability|
|Country X is fast-growing; Industry Y is doing so well; Company Z is launching a new product that I am certain will do well.|
However, I only have a fixed sum of money to invest in. Which should I choose?
| I am willing to accept higher risks to earn more, preferably without increasing my initial investment|
However, it must be really troublesome to exit and make new investments.
|Short on cash to meet the more immediate financial goals, what should I do?||Liquidity|
There are many types of mutual funds with different objectives to meet investor’s needs. In general, there are four basic types: equity funds, fixed income funds, balanced funds and money market funds.
Mutual Fund Types
- Equity funds invest in common stocks of public companies, generally with capital appreciation as an objective.
- Fixed Income funds invest in corporate, government and municipal bonds, generally with current income as an objective.
- Balanced funds invest in a combination of equity and fixed income assets including stocks, bonds and money market instruments, generally with current income and capital appreciation as an objective.
- Money Market funds invest in certificates of deposit, commercial paper and other highly liquid securities, generally with preservation of principal, liquidity and current income as an objective.
“An investor who has all the answers doesn’t even understand all the questions” – Sir John Templeton
If you think you are ready to invest, speak to your financial adviser today!
This article is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Any research and analysis contained in this article has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. The underlying assumptions and these views are subject to change. Franklin Templeton Investments accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Investors may wish to seek advice from a financial adviser before making a commitment to invest. In the event an investor chooses not to seek advice from a financial adviser, he/she should consider whether the investment is suitable for him/her. Copyright© 2016 Franklin Templeton Investments. All rights reserved. Issued by Templeton Asset Management Ltd. Registration No. (UEN) 199205211ERecommend0 recommendationsPublished in