[Financial management for novices] Three-minute guide to 6 entry-level financial tools!
Finance2025-03-21
3 Mins Read
With the cost of living rising globally, leading to widespread inflation, wealth management has become a vital concern for everyone. Regardless of your income, however, there is always an appropriate way to manage your finances. Here are 6 introductory tools for newcomers to financial management that can help plan for the future and tackle the challenges of life.
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6 Entry-level financial tools
1. Bank deposit
Bank deposit can be classified into demand deposits and time deposits, allowing account holders to choose different currencies to earn interest. Time deposits typically offer higher interest rates, while demand deposits allow easy access to funds at any time, albeit with relatively lower interest rates.
Advantages: Low risk, easy to operate
Disadvantages: Lower interest rates, lower returns
2. Foreign exchange
Foreign exchange involves trading foreign currencies to profit from exchange rate differences and interest rates. Common currencies include the U.S. dollar (USD), the euro (EUR), the Australian dollar (AUD), and the Japanese yen (JPY).
Advantages: 24-hour operation, no need to lock up the capital for extended periods, high currency liquidity and value preservation
Disadvantages: Fluctuating exchange rates, susceptibility to geopolitical events and other influencing factors, also exchanges may incur potential trading fees
3. Stock
Stocks are marketable securities issued by companies to raise capital for shareholders. There are 2 main ways to profit from shares - buying and selling them for price differences or holding them to earn dividends.
Advantages: High market liquidity, greater freedom, higher potential returns
Disadvantages: Higher volatility and risk associated with stock values
4. Funds investment
Funds pool money from multiple investors and are managed centrally by fund managers, who invest them in instruments such as bonds, shares, or currencies to generate profits for investors.
Advantages: Time-saving in investment management, more flexible in the investment amounts and duration, allowing investors to allocate less capital to diversify their investments across various groups of assets
Disadvantages: Management fees involved, lack of control over the investment portfolio
5. Bonds
They are a debt instrument issued by a bond-issuing entity (e.g. a company or a government) to raise funds. The issuer pays a certain percentage of interest over a specified period and repays the principal at maturity.
Advantages: Fixed interest returns
Disadvantages: Higher investment amounts, greater entry threshold
6. Savings insurance
This is an insurance policy primarily designed for saving money, with premiums paid monthly, annually, or as a lump sum. In addition to basic life protection during the insured period, the policyholder can reclaim the principal and interest at the end of the policy term.
Advantages: Regular premiums provide life protection and significant potential returns that may exceed those of bank deposits, making it suitable for those with limited time or investment knowledge.
Disadvantages: Early termination of the policy may result in a loss of principal
Invest wisely within your means, financial management novices!
We all want to preserve the value of our hard-earned wealth while having the opportunity to increase its value for our future and generations to come. However, no matter which investment tools you choose, it’s essential to manage your finances and investments within your means and with independent thought. Besides, regularly reviewing and adjusting your family financial planning based on your family's circumstances and market changes is crucial.
If you are a novice financial planner aiming for early wealth enhancement, consider choosing a medium to long-term savings insurance plan from a financially robust and reputable insurance company, and diversify your investments across various quality assets to achieve more effective returns.
The above content is reviewed by Mr Daniel Lau - Head of Wealth Management Training of AXA Hong Kong and Macau.
No warranty or responsibility is assumed by AXA Hong Kong and our related or holding companies regarding non-infringement, security, accuracy, completeness, adequacy, reasonableness, fitness for a purpose or free from computer viruses in connection with the information and materials provided. AXA Hong Kong and our related companies and holding companies do not accept any liability for any loss, damage, cost or other expense, whether wholly or partially, directly or indirectly, arising from any error, inaccuracy or omission of the information and materials to the extent that such liability is not excluded by law.
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