Question: Can insurance protect me against investment loss?

ANSWER: Almost everyone would be investing heavily right now if you could buy insurance to protect yourself against investment loss.

You can buy insurance to protect a tangible asset like your home, art and antiques, luxury goods or a vehicle from unexpected fire, theft or natural disaster, but it will not cover losses resulting from a failed investment or a drop in the market.

When setting up your investment portfolio you first need to speak with an independent financial expert who can help you analyse the risks involved across different investment schemes, the amount to invest based on your accumulated capital and your future expectations.

It is important that you get a return from your investments that matches the lifestyle you want to lead once you retire.

Spreading investments is generally the right approach as it generates a good return in healthy economic times, and protects you in difficult ones.

One way to secure against a financial investment is a fairly complicated plan called 'portfolio insurance'.

It is important to note that this isn't really insurance - however it involves the use of several options and hedges, that when used right, can protect your investments.

The bond market is a fixed income market, where you can buy and sell debt securities. A bond is effectively an agreement with an authorised issuer, whereby you lend them money, which they agree to repay, with interest, at a later date.

Hedge funds are essentially private investment funds that charge a performance fee, typically a percentage of the fund's profits, for the services of the fund manager. People are willing to pay these fees, because strong financial performance will enrich both the investor and the fund manager.

The idea of a 'hedge' fund is that it looks to offset potential losses by hedging - protecting the sum of its original investment via a number of methods.

Mutual funds are an increasingly popular investment vehicle in the UAE. Broadly speaking, mutual funds pool money from a number of investors in a collective investment, which are then managed by a professional and invested across a range of stocks.

People feel comfortable about investment in mutual funds because they include a basket of different stocks or sectors, so that poor performance in one area doesn't impact the investor too heavily.

While property in the UAE, bonds, hedge funds and mutual funds offer good investments, there's no such thing as a sure bet. By investing solely in one area, you expose yourself to changes in the market, both positive and negative.

As with any investment, it's worth remembering that reduced risk doesn't mean risk-free. Remember that your fund or investment manager needs to have a steady track record and understanding of the market in order to assess the different opportunities you have.

The challenge is that fin-ancial advice is still a somewhat under-regulated sector in the UAE. There are no minimum standards of service, or agreed expectations for professional conduct, or even an agreed minimum standard of qualification for entry into the sector.

Given these concerns, you are best advised to seek an adviser with a globally recognised qualification. The Financial Advisors' International Qualification (FAIQ), developed by the Chartered Insurance Institute is a good qualification to look for.

- The writer is director of general insurance at Nexus, one of the region's leading financial advisers. Views expressed are the author's own and do not necessarily reflect those of Gulf News.
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