Many people lack an understanding of financial markets and how to begin their investment portfolio. More importantly, they may not recognise the importance of investing, which is to build wealth and financial security by ensuring the money they earn also has earning power.

Once you recognise your investment goals, you’re better prepared to identify investment vehicles that will support your financial objectives. Those looking to invest in stocks have two popular options.

The first is to purchase stocks that offer dividends, which means that in addition to owning the stocks, investors will receive income in the form of dividend payments. The second option is to purchase a stock that is expected to increase in value over time. When they need the money back, investors simply sell the item and hope to make more than they spent on it originally.

The one downside to investing is that every investment comes with a certain amount of risk. While there is the potential to make big earnings, it is also possible that investors will lose some of their principal investment if the stock or item they purchased should unexpectedly lose value.

Some stocks carry higher risks than others, allowing investors to customise their investments based on their risk appetite. People interested in making investments can consult a licensed representative if they are unsure about whatever stocks, bonds or other financial securities to choose.

Now, your next question should be: What currencies should I invest in? Hello! There are more than 150 currencies in the world. The choice is yours. According to Investopedia, the top eight most tradable currencies are the United States Dollar (USD), European Euro, Japanese Yen (JPY), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), Australian/ New Zealand Dollar (AUD/NZD) and the South African Rand (ZAR).

Exchange-traded funds (ETFs) represent one of the easiest ways to invest in foreign currency. These funds purchase and manage a portfolio of currencies on behalf of investors using tools like swaps and futures contracts. The benefits are that investors do not have as much leverage-related risk, and the purchase itself can usually be done through a traditional stockbroker rather than a foreign exchange broker.

The key benefits of investing in foreign currency include:

_ Market liquidity and volatility – The forex market is the largest and most liquid of the financial markets.

_ Market hours and liquidity – Forex trading operates 24 hours a day, five days a week. The greatest liquidity occurs when operational hours in multiple time zones overlap.

_ Diversification – The foreign exchange market offers investors a way to diversify away from potential risks associated with the US dollar as an asset class.

_ Potential profit regardless of market direction – A short-sale – or simply a short – is the selling of a currency pair derivative before you buy it. It is very easy to enter into a short-sale when trading in the forex market. In order to make a profit on a short, you must buy the currency derivative back for less than you received when you sold it. The difference represents your profit or loss.

The key risks of investing in foreign currency include:

_ High leverage – The foreign exchange market moves in very small increments, which makes high leverage (via margin) a necessity and risk for those directly investing.

_ High volatility – The foreign exchange market is known for high levels of volatility due to economic reports, central bank interventions, and other factors.

_ Transaction risk – Transaction risks are an exchange rate risk associated with time differences between the beginning of a contract and when it settles. Forex trading occurs on a 24-hour basis which can result in exchange rates changing before trades have settled.

Investors can also directly buy and sell individual currencies on margin through a foreign exchange brokerage. Investors looking for an easy way to invest in foreign currency should consider ETFs. These funds are easier to trade with traditional stockbrokers and have fewer leverage-related risks.

However, those seeking more direct exposure to foreign currency can also open a foreign exchange brokerage account and purchase the currencies directly using margin. There are risks and rewards associated with either approach, and investors should carefully look at these factors before making a decision.

Jodie-Ann Ebanks is the reconciliation clerk @ SSL