Tuesday, September 23, 2008

Avoid Investment Instruments You Don't Understand

Unless I understand the investment instruments and the risks, I will not be able to manage my investment risks. So it is best to avoid such new investment instruments and not be overcome by greed and fear.

I prefer to stick to traditional investment instruments. It's better to be safe than to go for the little additional returns without knowing or understanding the hidden risks. Capital protected or Capital guaranteed does not mean there is no risk. One needs to understand the conditions attached before the investment is considered capital protected or guaranteed. These had been explained in the Straits Times before.

I'm lucky as I have some financial education and able to question and challenge any sale of new investment instruments to me.

Now that I have a better understanding of the economics and stock markets, I'm able to better manage my investments in equity and equity-related instruments such as unit trusts.

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