Dubai: Once you have cleared your path of huge debts, set some rainy day fund aside, and ensure your finances are adequately protected, you can proceed with your investment journey.
As with any important undertaking, investing is not easy. It takes patience, courage and determination, so it is wise to lay down your goals first to get you started in the right direction.
"Unless you enjoy it as a pastime, a goal for investing creates the correct mental attitude required to put in the necessary work and sacrifice to get under way with the process," says Clem Chambers of ADVFN.com.
Ask yourself what the investment is for. Is it for you to prepare you retirement or is it for a child's college tuition in 18 years? Is it for an inheritance fund for the family after your death or is it for purchasing a house?
"All of these make up objectives or goals and allow professionals to design investment programmes accordingly," says Shailesh Dash of Al Masah Capital.
If you don't have a clear set of goals, you will not know the types of investments suitable for you, says Dan Dowding of Killik & Co Middle East and Asia.
Reality check
"Without a clear goal, you will never achieve what you want to achieve… Set a goal, then apply a reality check — is it realistically achievable given current returns, my risk profile and time horizon?"
Specific goals like funding for children's college tuition or your own retirement are time-bound, so after you have decided what you are investing for, you will then need to set a time frame. In the world of investing, time frame doesn't mean only days or weeks. You should be looking at months and years.
Time frames will depend on a person's investment profile.
Dash explains that those that are aggressive will look for above-average gains in a short period, while a conservative investor will look for minimum returns over a long period, say more than ten years.
"Your profile is determined by your attitude towards risk and the fear of losing money, as well as your end goals."
But beware that investing in the short term is speculating and is highly dangerous, warns Chambers.
"Some people may say ‘I must make a lot [because] I'm too old to wait'. Sadly, the market doesn't care about your age or health. The market pays the investor for his capital and the skill with which it is applied and this limits what is possible."
Long-term view
Richard Musty, managing director at Lloyds TSB Middle East says that you should take a long-term view of your investments and, at the same time, build flexibility into your portfolio to accommodate the various stages of life and the changing needs you will have.
"Also consider the bene-fits to be gained by unit cost averaging. By investing a fixed monetary amount regularly into a portfolio or investment, it is possible to average down the total average cost per share, giving you a lower overall cost for the shares purchased over time."
However, watch out for hefty penalties before you take out a long-term investment plan.
"Look at shorter term objectives and do not be taken in by sharp-suited sharks selling 25-year savings plans with enormous penalties for early encashment," advises Steve Gregory of Holborn Assets.
"You might find them in the banks and insurance companies as well as supposed financial advisory companies. The longer the term you sign for, the greater the early surrender penalties. This is the greatest risk of all to your hard-earned investment money."
