The time to start saving is right now

2011-08-20 00:00

IN today’s economic situation, where the basic living expenses, petrol and food prices, as well as school fees, continue to rise, investing is not top-of-mind for most individuals and the decision to save is often postponed.

As a consequence, the average South African is likely to retire at a standard of living well below their current circumstances.

A distinction must be made between investing and saving. Savings are often defined as money held in liquid instruments for the purpose of emergencies or short-term cash-flow needs, such as when you need to replace a burst geyser or pay for medical treatment.

In the context of personal finances, investing is regarded as a long-term approach to achieve inflation-beating returns on your money through exposure to financial markets. To achieve financial independence, savings and investments need to be part of a complete financial plan.

Setting aside a small amount of money every month as early as possible, will provide you with the opportunity to grow your money. The longer your money is invested, the more time it will have to ride out any short-term market fluctuations and it will benefit from the historical upward trend of the market.

Developing an appropriate investment strategy for each life stage is a critical ingredient to ensuring that the money saved works for as hard and as long as possible. A spread of the investment across different asset classes such as property, bonds and cash, will also contribute towards avoiding the potential loss of retirement capital. Beating inflation will ensure that the purchasing power of your capital is protected in real terms.

A key to successful investing is to ensure that you take responsibility for your investments and remain well-informed . An important step in any long-term investment plan is deciding what your objectives and timeframes are. Then select an appropriate investment vehicle, depending on when you will need the money. By starting with what you’ve got you will be surprised at what you can accomplish. With commitment and the right investment choice, you can reach your goals.

•  Johan Gouws is the chief investment officer at Absa Investments Multi Management.

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