Making your money work

BY Wasantha Mapatuna, CFA

People often wonder how individuals with average-paying jobs can afford to retire early or fund their kids’ private education, while others struggle constantly with financial stress. It all comes down to how one manages his or her money. One of the most effective strategies is investing.In Sri Lanka, most of us are familiar with saving through fixed deposits, owning gold or contributing to the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF). But many don’t take that next step—growing money through investing. Let’s explore what investing really is, why it matters and how you can get started today.
Why financial planning matters
Imagine going on a road trip but having no clue about where you want to go. So, you start driving aimlessly hoping to figure out your destination on the way; you will end up wasting time and running out of fuel trying to reach nowhere, which is the same as managing your money without a concrete plan.
Think of financial planning as your roadmap. It helps you to understand where you are now and where you are heading—whether that’s building a house, starting a business or retiring with financial freedom and how to get there. Without a plan, it’s easy to fall into common traps such as spending more than you earn, overusing credit cards or failing to prepare for emergencies. However, with a simple plan in place, you can improve your financial habits, reduce your stress and work steadily toward long-term goals. 
What is investing and how is it different from saving?
In Sri Lanka, we often associate financial safety with saving habits such as keeping money in a bank account or fixed deposit. While saving is important for short-term needs and emergencies, your money typically grows slowly. On the other hand, investing is about putting your money into assets like shares, real estate, bonds or collective investment schemes (unit trusts) with the expectation that they’ll grow in value or generate income. It carries more risk but also greater potential returns. Investing is better suited for long-term goals like sending your child to university or planning your retirement.
How investing helps grow your wealth
Let’s assume you put Rs.100,000 into a one-year fixed deposit at 6 percent annual interest and you will keep reinvesting the investment proceeds (the interest you earn) in the same fixed deposit for 10 years. After 10 years you will have about Rs.179,000 as your end balance. Now, imagine you invest that same Rs.100,000 in a diversified unit trust (typically offered by an asset management company or a wealth management company) that earns an average return of 10 percent annually. In 10 years, your investment could potentially grow to over Rs.259,000. This is the power of compound interest where your returns start earning returns. The earlier and more regularly you invest, the more your money will grow over time.
Beware of inflation and missed opportunities
Inflation: Inflation means that the prices increase over time, which reduces the value of your savings, if they don’t grow fast enough. For example, if you save Rs.1,000 in an account earning 6 percent interest, you’ll have Rs.1,060 after a year. But if inflation is 8 percent, something that cost Rs.500—like a lunch packet—will now cost Rs.540. So, even though your money grew, you can no longer buy the same two lunch packets you could before. This shows how inflation quietly lowers your purchasing power. To protect your money and keep up with the rising prices, it’s important to invest in ways that grow faster than inflation.
Opportunity cost: Suppose you kept Rs.1 million in a regular savings account for 10 years. That money might grow slowly but compare that to what you could have earned through investing in high return investment options such as corporate bonds, shares or real estate. The lost potential income is your opportunity cost.
Four key principles every investor should know
1. Time horizon
While, investing can generate higher returns, your ability to take risks and nature of the investment should be matched with the expected timeline of the return. You may be investing to go on an overseas trip in one year,  build a house in five years or plan for your retirement in 20 years. The longer your time horizon, the more risk you can afford to take. For short-term goals, safer investments like treasury bills or money market funds (unit trusts) are better. For long-term goals you can consider equities (shares) or real estate.
2. Risk and return
Higher returns usually mean higher risk. For example, shares of a listed entity can give strong returns but may fluctuate. Treasury bonds are safer but earn less. Find a balance that matches your goals and risk tolerance.
3. Know risks
Here are a few risks every investor should be aware of:
Market risk: For example, share prices on the CSE can go up or down depending on the business cycles, economic factors or political changes.
Inflation risk: Returns that don’t exceed inflation will reduce your purchasing power.
Credit risk: If you buy a corporate bond and the company defaults, you may lose money.
Liquidity risk: Some assets like property cannot be sold overnight in an emergency.
Understanding these risks doesn’t mean avoiding them—it means managing them wisely.
4. Diversification
Don’t put all your eggs in one basket. A diversified portfolio spreads your money across different types of investments so that bad performance in one area doesn’t derail your entire plan. You might invest in a mix of shares, bonds, real estate, gold and foreign currency savings. Diversification protects you from the risk of one bad investment impacting your full portfolio. (We will discuss diversification in more detail in a follow-up article).
Common investment options in Sri Lanka
Here’s a quick look at popular asset classes available locally:
Equities (shares): Buy a share of the ownership in listed companies via the CSE that provide a variable return. High potential return but higher risk.
Fixed income (treasury securities and corporate bonds): Similar to fixed deposits, these include treasury bills/bonds issued by the Central Bank or corporate bonds by listed companies that typically provide a fixed return. Lower risk, suitable for conservative investors.
Unit trusts: Pooled investments managed by professionals. Ideal for beginners or those who are not financially savvy or don’t have time to follow the markets.
Real estate: Land, commercial properties and houses, can appreciate in value or bring rental income. Less liquid than fixed income and equities. 
Commodities such as gold: Traditionally trusted by Sri Lankans—good as part of a diversified portfolio and a useful hedge against inflation.
Alternative investments: This includes private equity, which consists of investing in unlisted companies and start-ups—usually for more experienced investors who have an appetite for higher risks
Foreign currency accounts: US dollars or euro savings can protect against rupee depreciation, though returns may vary. Sri Lankan residents may have restrictions on eligibility to invest.
You don’t need millions to start
Today, investment opportunities are more accessible than ever. You can begin your investment journey with a unit trust for as little as Rs.1,000 or invest in shares by opening a CDS account through a licensed stockbroker. Whether you’re contributing to unit trusts, purchasing shares or investing in treasury securities, all these processes have been significantly simplified through convenient online platforms. Small, regular investments like a monthly contribution of Rs.5,000 to a growth fund (a type of unit trust) can create a significant financial cushion over 10 or 20 years. And if you’re a wage earner contributing to the EPF/ETF, that’s already a passive investment on autopilot and all you need to do is build around it.
Final thoughts
Investing is no longer just for the wealthy or finance professionals. It’s a practical tool that any Sri Lankan can use to grow wealth, beat inflation and secure a better future. Investing isn’t gambling; it’s planning for your future. It’s about using time, discipline and knowledge to grow your money so you can live with greater financial freedom and peace of mind. 
Regardless of your age, now is always the best time to start. Learn the basics. Start small. Stay consistent. You will see your financial future begin to take shape. The journey to financial independence doesn’t begin with a lottery ticket; it begins with one smart decision at a time.
This article is part of a collaborative series by the CFA Society Sri Lanka, Colombo Stock Exchange (CSE) and Securities and Exchange Commission of Sri Lanka (SEC), which aims to enhance financial literacy and empower individuals with the knowledge and tools to make informed financial decisions and build long-term financial security.