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Planning and Guidance

Principles of saving and investing

Set specific, achievable goals.

Prudent financial planning starts with setting the right financial goals.

Your goals should be specific and achievable and you should always attach a timeframe to them. How you go about achieving your goals depends mainly on what kind of investor you are, how much risk you can assume and how long you plan to invest. These three factors will form the backbone of your financial strategy, so it’s important to have a solid plan before investing.

A short-term investment goal will happen over a period of one to five years. You might want to take a holiday or some unpaid leave, or buy a new car. Typically, if you’re looking to achieve short-term goals, you’ll want to stick with less risky, more conservative instruments like cash and fixed-income funds.

A medium-term investment goal will pay off in the neighborhood of five to ten years. To reach a medium-term goal, like saving to make a down payment on a new house or apartment, you may want to consider a combination of conservative investments, like cash or bonds, and riskier assets like equities, which offer the potential for higher returns.

A long-term investment strategy will bear fruit after a period of ten years or more. You could be saving for your children’s education, for example, or planning a comfortable retirement. When you’re investing to achieve a long-term financial goal, you generally invest in growth assets like equities, which have the potential for greater capital appreciation.


Diversifying is simply mitigating risk by spreading it across different types of investments, which will react differently to the same market event.

For example, when a country’s economy is growing, equities tend to perform better than bonds. But when the economy slows down, bonds often perform better than equities. As markets can be volatile and unpredictable, holding both equities and bonds reduces your risk of suffering a large loss due to changing market conditions. This is an example of diversification across asset classes.

Diversification can also be applied across geographical locations, industries or sectors, currencies, credit ratings (for bonds) and many more types of investments.

Diversification doesn’t guarantee that you won’t lose money, but it will definitely help you achieve your long-term investment goals, while minimizing your risk along the way.

Save regularly to compound.

A smaller investment made early on can generate a larger payout than a larger investment made later in life. The reason this is possible is because of the compounding effect.

Compounding happens when the money earned by an investment is reinvested to generate even more earnings over time. In other words, compounding guarantees that you generate returns both on your initial investment capital and the accumulated returns over time.

The longer you stay invested, the more interest you compound. The more often you compound, the more growth you’ll see, since compounded returns grow exponentially.

Or imagine this.

Let’s say your investment returns 6% every year. At this rate, your investment will double in value every 12 years! So the sooner you start, the better, and no amount is too small. Literally.

Understanding time in the market vs market timing.

Investors are always looking for the best time to enter the market. But "timing the market"—or entering at the lowest point of a market downturn—is something that even professional investors can’t usually manage.

Fortunately, when it comes to financial planning, things are easier. The key is to determine how much time you have until you want to cash in on your savings, so that you have enough time in the market to achieve your goals.

If you have 10 years or more, and can invest in a diversified portfolio that spreads out your risk, then the best time to invest is now. This way you can start reaping the rewards of compounding and achieve even higher growth rates on your initial capital.

With a smart investment plan and the discipline to keep to it, you don’t even need to worry about timing the market. As long as you’re willing to stick to your plan, sometimes for even longer than you initially anticipated, history has shown again and again that you’ll be rewarded in the end.

The project was submitted under the Digital Transformation for Business Program and is co-funded by the European Regional Development Fund and the Republic of Cyprus.