U and your money
I have read where the stock market has opportunities for investing. Is this something that I should consider?
Keep investing, keep diversifying
Many people are intimidated by the stock market simply because they do not understand how it works. This category of financial instruments is one of the vehicles that can be used generating wealth and should form part of an investment portfolio.
As an investor, you would have seen where Business Insider, a business news website, ranked the Trinidad and Tobago Stock Exchange (TTSE), as the 5th Best Performing Stock Market for 2011. When the yearly returns were calculated, the TTSE was up 19.3%. What this translates into is that the TTSE was among the best performing stock markets in the world, behind Venezuela, Mongolia, Panama and Tehran.
On the TTSE, where regional and local stocks are traded, investors have the opportunity to own shares in some of the largest and most profitable companies in the country and in the region. Share ownership provides investors with the opportunity to earn extra income from dividends, which are paid out of the profits of a company and as such provide an opportunity for wealth accumulation and appreciation.
When you buy a stock, you buy fractional ownership in a company issuing it. A company 'goes public' or becomes a stock listed company, when it sells a part of its equity holding to raise capital, through an IPO (Initial Public Offering). The stocks are sold, after which they can be traded on the stock market. Once you own one or more shares in a company, you become a shareholder which gives a shareholder the right to vote on decisions affecting the company. The price at which a stock may be bought or sold is determined by the demand and supply for the security.
However, making money on the stock market is no child's play. Trading stocks requires a substantial amount of study and understanding, before you put your hard-earned money on the line and begin making profits. There are no shortcuts to riches and the same applies to the stock market.
Every stock market, including the TTSE has an 'Index', which gives an indication as to how listed stocks are performing. Index numbers represent a change from an original or base value and this movement, up or down, gives investors a snapshot of the market landscape.
Investing on the stock market, however, is often considered riskier than some other investments. The reason for this is that share prices rise and fall as economic and market forces change. Once the shares are listed on the securities exchange, investors are exposed to the unpredictable nature of the stock market as the share price will be determined by the forces of demand and supply.
Shares or stocks should be selected carefully through a process of investment analysis and portfolio management, functions which can be performed by your stockbroker. The process of investment analysis takes into consideration the operational and financial policies of a company, its operations in the context of the larger economy, its sources of growth and the quality of its management team.
When this is completed, the stockbroker selects an investment portfolio or a mix of different stocks, which best fits your risk tolerance and investment objectives. Once you determine which shares you wish to buy or sell and your investment objectives, the broker or a licensed investment advisor can advise you accordingly but the final decision rests with you.
As a shareholder, you can minimize your investment risk by diversifying your investment portfolio. To protect your investment you should avoid putting all your "eggs in one basket". When one company's share price doesn't perform well, you can still benefit when the share price of other companies do well. Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of one any asset class or security, so if one asset class or security underperforms the others can offset the impact.
At the Unit Trust Corporation, the Growth and Income Fund (GIF) is invested in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities, and is specifically designed as an efficient investment vehicle that provides the investor with the potential to earn capital growth and dividend income.
Other UTC investment vehicles that give investors a diversified equity portfolio include the North American Fund that offers the opportunity to hold shares in companies across North America. This applies to the European Fund, Latin American Fund and Asia Pacific Fund where investors are given the opportunity to participate in the equity markets of these regions.
The path to investing success takes time, serious study, disciplined effort and most importantly, patience and UTC portfolio managers can help investors enhance the performance of their investment portfolio and to identify ways for them to continue to save effectively and generate wealth.