A long-term plan will help you through the investment maze

2010-04-17 11:46

Judging by the high number of calls I received lately, it seems

people have not fully recovered from the recent economic disaster that was

caused by the recession.

Interestingly, some have developed an interest in the stock

market.

It is difficult to measure the ­degree of success these individuals

are achieving, but I have discovered that they tend to focus on quick ­profits.

The problem with this ­approach is that small amounts are used and, as such, the

profits are ­not that impressive if one looks at the bigger ­picture.

For example, an individual picks a R2 share and purchases R200

worth of stock. As soon as the share price moves by 30c, a ­reasonable growth in

percentage terms, the investor sells. It is through such transactions that many

have learnt the basics, but not the art, of investment.

I was listening to the radio the ­other day and a report stated

that investors who bought R5 000 worth of a specific share three years ago would

have seen that investment grow to R200 000, despite the recent recession.

Another example is that of investors who bought shares in a company

that listed in 1999. The investment of R10 000 was worth R600 000 five years

later in 2004.

Now, therein lies the art of investing – picking the right share

and taking a long-term view of ­investing. The stock market is just one of many

options investors have when creating a balanced investment strategy.

A good investment plan takes into account all possible events and

­individual circumstances. While some products best suit certain ­financial

objectives and offer favourable tax benefits, others may offer high ­returns and

attract capital gains tax on interest earned.

Now appears to be the right time to invest in the stock market. If

you wait for the markets to fully recover or correct, you may miss the boat and

only be able to chase yesterday’s winners. One also needs to understand the

advantages of lump-sum investments and smaller recurring contribution

investments.

A needs analysis will help you understand and choose the option

that best suits your personal financial position and needs.

Most importantly, a risk ­analysis will determine the type of stock

or portfolios that will best suit you and allow you to achieve your goals.

It is advisable to invest in the stock market when share prices are

low. Always take a long-term view and do not forget what your primary objective

is.

  • Diale is a financial planner. He

    can be contacted on 078 775 0802


— Ike Diale

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