Most of us lucky enough to grow up in relative comfort, safety, and security probably failed to give much thought to long-term financial security during our formative years.
If we were fortunate enough to have gainfully employed parents who were able to protect and provide for us, and our current and immediate needs were being met, then that was usually sufficient to satisfy us. The thought of future days ahead and needing to provide forthwith could not have been further from our minds back then.
As time invariably ticks by for all of us and we head into ever more uncertain times, however, thoughts invariably turn to the future and financial provisions for ourselves and our families. This is where things can start to become confusing for the layman simply due to the wealth of information available.
Put simply, where does one begin?
The majority of us are probably aware to some extent of the importance of basics such as medical healthcare, life insurance, and a rough outline of pension schemes, but trying to wade through the forest of alternatives out there for further provision can be both time-consuming and baffling. Those of us who choose to live our lives as expatriates in other countries can find these challenges especially difficult at times.
In days gone by, simply “saving” money in a bank account was a way of ensuring some sort of return, or income, for the future. Depending, of course, on a country’s financial condition, banks would offer a fixed rate of interest and so one would be fairly confident of an income of some sort, however negligible it may be. The recent global economic downturns have pretty much put paid to such guarantees, however, with interest rates being either non-existent or else so small as to make no difference. This means that investors have had to look further afield.
Inflation is currently also pretty much a global issue, with the effect that our salaries are, in the main, worth less in real terms than they were just a few years ago. So, where can we go for help and advice?
Well, the best bet may be to seek the advice of an independent financial adviser. A shop around on the internet and beyond produces a myriad of companies offering their services, and if time is invested in comparing such companies, then some good deals can be found. For a small fee, it is possible to find companies able to do a full audit and personal analysis of your financial situation and thus make unbiased suggestions as to how best to invest your money.
Firstly, it is important to make provisions for yourself and loved ones through life and health insurance schemes. These may be fixed-term or whole life, and they may or may not be guaranteed to pay out any benefits, or dividends, within the policyholder’s lifetime.
Then there are pension schemes. Money paid into a pension scheme will be invested and compounded. This means that profits made within the scheme will be reinvested and will – theoretically at least – lead to further profits. The type of investments your pension money will be ploughed into will depend upon how much risk you are willing to take. The higher the risk, the greater the potential profits, with, obviously, the more chance of losses being occurred.
Pension schemes can come in different forms. They can be through the company you work for, in which case your company will contribute a certain amount each month and you may have the option to match or add to these amounts through additional payments. Alternatively, they can be government or national pension schemes whereby a certain percentage of your salary is automatically deducted by the government and when you reach the national retirement age you become eligible to receive a state payment. Finally, a private pension plan can be taken out.
It is never too early (or too late) to start considering such, and those with both the means and foresight to be able to pay into one from an early stage in their working life will have a degree of security when it finally comes time for them to stop working.
Now, there are other ways of investing money aside from pension schemes, and these include equities, stocks and shares, index funds and mutual funds, amongst others. These can be procured on an individual basis with nothing much more than a laptop, a cup of coffee, and nerves of steel. An alternative, of course, is to once more seek professional advice and help.
Whether one decides to “go it alone” or to employ the services of those more qualified, there are various factors that come into play. As mentioned above in the case of pensions, any potential investor has to, first of all, be clear in their own mind as to the reason and aims behind their investment. What are the ultimate goals? Are you looking for a short-term or a long-term dividend? Are you willing to take risks? And, perhaps most importantly of all, what can you afford to lose?
This last consideration is particularly important and is the reason why many people do not “put all their eggs in one basket” and instead choose to diversify their portfolio. This could range from buying shares in “blue-chip” companies, which will provide a steady if unspectacular dividend and growth, to speculative investments in commodities and service industries.
To spread the risk, many people choose to use mutual funds or exchange-traded funds for the most part, which allows investors to purchase baskets of securities instead of individual stocks and bonds. Again, this can be done individually by those brave enough to go it alone, or else through the acquisition of professional help.
Other financial investments include those made in goods, bricks and mortar, and commodities. With the changing economic focus and times, many countries’ economies are shifting to the point that it is becoming increasingly difficult for young people especially to gain a foothold on the property ladder. Those of us of a certain age growing up often heard the virtues of investing in the property market extolled to us, and it is true that property very rarely, if ever, depreciates in value.
The truth is, financial planning and investment can be a minefield but it doesn’t need to be an insurmountable obstacle. Whether through inertia, lack of knowledge or over caution, too many people avoid taking the plunge until it is too late and then they live to regret it.