Investing can be a satisfying way to increase your fortune and help you achieve your financial goals.
However, it is essential to make wise investment choices and avoid risk, such as buying and selling stocks
based on tips and rumors or investing all your money in one field of investment. Your objective is to
continually accumulate more assets, not lose the ones you have.
This booklet provides an overview on investing. It explains how to choose investments, how to evaluate
their performance, especially Investment Portfolios and how to manage your portfolio to seek the best
return.
The booklet also discusses the different types of investment risks and the strategies for limiting those
risks, as well as how to learn to make good decisions, avoid common mistakes, and take advantage of
the benefits of investing.
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Part1: An Overview of the
Foundations of Investment
Why Do We Invest?
While you might not have the money to afford the things you want, making good investments can help you in accumulating what you
need over time. For example, by investing you
can:
• Enhance your wealth.
• Provide income.
• Meet your short- and mid- term goals,
such as a new PC, a car, or other items.
• Meet your long-term goals, such as buying a new home or securing your future
when you are set to retire.
Investing can also protect you from inflation,
which is the steady increase in the price of
goods and services. It is known that Inflation leads to decrease the Riyal’s value, which
means you need more money every year to
maintain the same standard of living. According to the Saudi Arabian Monetary Agency, inflation in the Kingdom has risen significantly
in the recent years.
Some people think that they are avoiding risk
by saving money instead of investing. But even
though a bank account might keep your money safe, it won’t allow your assets to grow at a
rate that is high enough to offset inflation. So
the value of your savings, measured as a buying power, will steadily decrease.
However, if your investment portfolio gives
you a return that is greater than 7% ( as an
inflation rate for example) you will be able
to preserve your wealth and increase your
buying power. If your investments provide an
average return of 10%, you will stay ahead of
inflation and also start to build your wealth.
Gaining Profits
Unlike inflation, increased profits allow you
to use time for your advantage to steadily
increase the value of your investments. Your
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money multiplies when you reinvest your
earnings, or buy more shares with the money
you make from your investments. When you
add your earnings to your investment account,
you increase the size of your capital, which in
turn can increase the amount of your return.
For example, if you invested 20,000 Riyals in
a stock that had a return of 9% each year for
five years, and reinvested your dividends each
year,
