A way to achieve financial independence

Abdulrahman Saleh Alotaibi

During the course of our lives, we explore various methods to make a decent income. Most people undergo the route of employment where they start at a certain pay level and try to make their way through the pay scale. Their wages determine their lifestyle and can contribute to their prosperity. With this conviction, some will exert every possible effort to put their best foot forward to do what they believe is right, that is to work harder.

In the process they might lose sight of other important aspects of life and, more sadly, after some time, they might realize that they were in a rat race that got them nowhere and did not achieve their aspirations. Apart from hard work, there are other circumstances beyond the control of individuals that could prevent them from reaching their career goals.

Other people take the path of earning income by running a business. They strive to make their business profitable and look for ways of expanding it. In their quest, they take risks that can result in loss or gain. They are affected by market conditions and available resources, and their targeted income can be seasonal. With the hope of improving their income, some individuals work additional jobs or run a business while being employed in another job.

What all of these hardworking people have in common is that their level of income varies over the years. They will remember the good times when business people had huge returns and employees received massive bonuses or commissions. While favorable or unfavorable change in the level of income is inevitable, a form of savings and passive income should not be neglected.

Traditionally, people maintain that they will start saving when they reach a comfortable financial stage but only a few seem to be able to get into the habit of saving. Even if they do start to save, accumulating cash will not generate income and it may lose its future value. Therefore, people started to look for investment vehicles, which are mainly real estate and the stock market.

Owning commercial real estate is a large investment that takes years to acquire and receive returns. Also, it is not wise to invest in one type of commodity or market such as real estate. On the other hand, investment in the stock market can be perceived as an alternative solution to overcome capital requirements and reach adequate diversification. However, in reality those hardworking people may not have the time and, most importantly, the knowledge and expertise to invest wisely in the stock market. This will make it difficult to perform due diligence and, in turn, may result in huge losses.

Mutual funds are an essential investment method that represents a solution to enable savings and passive income. The goal of these funds is to enable investors to diversify their portfolio at low risk investment while maintaining capital and attempting to produce gain over a period of time. Mutual funds are available in investment firms, such as banks, where individuals can purchase units within certain funds. Each unit represents the sum value of stocks, bonds or other assets owned by a group of investors.

Each fund is managed by a professional who acts on behalf of investors to realize investment goals. Investors have the opportunity to research and decide on the most suitable fund, as there are adequate reports available for potential investors to review. These reports include investment strategy and historical performance that is attested by independent parties. The level of detail can be overwhelming, but one should take time researching or should consult an advisor to help decide on the most suitable fund.

Investing in mutual funds is an affordable method of wealth creation and management. Furthermore, one can diversify by purchasing units in different funds. For each fund, there is an investment strategy with a detailed description of what the units represent. This could be the ownership of local or international securities, stocks, bonds or commodities. Some funds provide periodic dividends that represent a passive income that encourages investors to increase their assets and reduces the temptation to liquidate the units held. Investors can access their portfolio at any time to review the fund’s performance. Retirement funds operate in a similar manner, so mutual funds could also be a supplement to retirement income.

I believe mutual funds are the ideal safe box for business owners and employees to invest their additional income. They will have access to ownership in successful companies and assets around the globe. While paying attention to their day-to-day responsibilities, their investment will be managed by a qualified manager who is obliged to work in the best interest of mutual fund shareholders.

Abdulrahman Saleh Alotaibi

The writer can be reached at: otaias0y@gmail.com