Categories of investments

When you invest your money, you should take note of the following categories of investments:

a) exchange or market traded products
b) structured products
c) unregulated products

Category (a) include shares, bonds, currencies and commodities traded on an exchange or over the counter. You can buy or sell the product and has to pay only the spread and other charges. These costs are transparent to you.

Category (b) include life insurance policies, dual currency investments, linked notes and other structured products. You can only buy the products on the terms designed by the issuer. There is the risk that the issuer has creamed off a large margin to cover their profit and marketing expenses, giving you a poor deal (relative to the risk of the investments). As they are regulated, the investor should study the benefit illustration or prospectus that is mandated by the regulator. If you find these documents to be confusing, you should avoid these investments. You should understand the risk and make sure that you can commensurate return, before you make any investment.

Category (c) are land banking, time share and other unregulated products. These products are the most risky and require careful study. They should only be invested by sophisticated investors. The ordinary investors should avoid these products.

These points are explained in more detail in my book, Practical Guide on Financial Planing, which is written for the layman. I advised investors to invest in category (a) product and to manage the risk through diversification.