Readers' questions: 'Are there any simple rules as to how to protect my investments?'
1 - Only invest in a firm regulated by the Central Bank. Doing so should ensure that the company you're entrusting your money to is above board (though some investors have been burnt in the past after investing in regulated firms). By investing in a regulated firm, you should also be covered by the State's investor-redress scheme. That scheme, which is run by the Investor Compensation Company Limited (ICCL), pays up to €20,000 in compensation to investors in firms that go bust - as long as the firm is authorised by the Central Bank and the investment product itself is covered by the ICCL.
Many investors have been caught out over the years after they put their money into investments - or firms - that fell outside the scope of the ICCL.
Some of the investments that are typically covered by the investor-compensation scheme include public and private company shares, life-assurance policies, unit-linked funds, tracker bonds, futures and options. A direct investment in property and unregulated unit trusts are not covered however.
Pensions are not usually covered either. However, if you have a personal-pension product, such as a personal retirement savings account that you have arranged through an investment firm, it may fall under the scheme.
2 - Don't put all of your eggs into the one basket. Pouring all of your money into one investment - such as property or the shares of one company or bank - is dangerous. Should your investment take a turn for the worse, you could lose a lot of money. Spreading your money across various types of investments - or in an investment fund that is itself invested in a range of different investments - should reduce your risk of losing out.
3 - Check the track record and past performance of an investment fund - as well as the company managing that fund - before committing your money. Remember, past performance is no guarantee of future gains.
4 - Get independent financial advice before investing your money. The best bet for independent advice is an authorised advisor regulated by the Central Bank who charges a fee and does not receive commission for promoting particular products. Otherwise, the broker or advisor may be receiving a generous commission or fee for selling you a product - so he may not be acting in your best interests.
5 - Review your investments at least once a year so that you can see if your investment is performing as you had expected it to. It's important to take a long-term view with investments and to tolerate a certain amount of volatility at times. However, if an investment is consistently losing money, you may need to move your money elsewhere.
6 - Don't make rash decisions or follow investment fads. You could lose a lot of money by doing so. Fully understand and be comfortable with the risk you are taking on with an investment.
Sunday Indo Business