Simple advice for a novice investor

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This is the first in a series of six articles, published between October 1 and 6, in support of the Bermuda Stock Exchange World Investor Week Quiz Challenge. Each article has a question embedded. Find the question and send your answer to wiwqc@bsx.com. Those with six correct answers will be entered into a draw to win a grand prize of a $2,500 Bermuda securities portfolio.

An objective of World Investor Week 2018 is to highlight the importance of investor education and protection. CFA Society Bermuda, in support of this initiative, asked some of its members what one basic piece of advice they would give to a first-time investor. The answers were surprisingly similar, simple and straight forward. To summarise:

Start with an emergency fund

Make sure you have at least three to six months of living expenses for emergency savings in a safe, stable account that you can access immediately if needed. This is your emergency fund in case something happens like you lose employment, etc. Make this money work for you by using a term deposit at a reputable bank with a good credit rating. Only then should you start thinking about investing into different funds or strategies.

Understand where your money is going

Before you invest, try to do your own basic research and understand what you’re investing in. You don’t need to know all the technical details, but you should have a general understanding of what the investment is and what the expected risks and rewards might be. If you can’t understand it, ask questions until you do. Just as you would do if you were investing in a car or a house, or any major purchase, do a bit of research before you part with your money.

Review regularly and revise as necessary

The money you are investing is your money and you should consider it as you would any other asset. Just as your car requires regular maintenance, like servicing and washing, your investments deserve some of the same attention. It is important to put aside time to regularly review what has happened with your investments and make sure they are doing what you expect them to do, as well as recognise when it might be time to make a change.

Butterfield Bank is by far the largest domestic issuer, by market capitalisation, listed on the Bermuda Stock Exchange. Which company was the second largest, as of the close of trading last Friday?

Set realistic expectations

Far too often these days, we see traders featured in films who are glued to their desks, monitoring every stock movement, and turning 500 per cent profits in a matter of days. Then we come back home and wonder if we could do the same. Be an investor, not a gambler — if it seems too good to be true, it probably is. As the self-made billionaire Warren Buffett preaches: “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”

Treat investing like a series of steps

Consider all your investments — emergency cash reserves, pension funds and any other significant assets, including your house — and how they will be a part of your financial goals for the future. Develop a plan to contribute regularly, consider longer term investments and let the power of compounding work for you. When needed, get help from an accredited investment adviser who can help you formulate and ultimately achieve your goal.

A key part of the mission of CFA Society Bermuda is to promote and support investor education in Bermuda.

In the coming months you will see the launch of our financial literacy initiative, as we partner with existing organisations to expand investor education initiatives.

We will expand on those topics above, and more, to help individuals gain the knowledge and skills that will help them make informed decisions and achieve financial stability.

CFA refers to Chartered Financial Analyst. For more information about CFA Society Bermuda, visit www.cfasociety.org/bermuda

For full details of the WIW Quiz Challenge, see details attached to this webpage under the heading, Related Media

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Published Oct 1, 2018 at 8:00 am (Updated Oct 1, 2018 at 12:35 am)

Simple advice for a novice investor

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