Investing wisely

2016-04-26 06:00

FOR many people the word “investing” brings up thoughts of dark-suited businessmen disappearing with other people’s money, stock markets crashing with lifetime savings or simply, not being able to understand where all the money went.

As a financial journalist, I have lost count of the number of people from all walks of life who have asked me where they could invest their savings or some funds they had come into unexpectedly.

They worry about the rand’s value, or whatever dire financial event that may be grabbing the headlines on that particular day, and then they want to know how they can invest their money to protect its value best.

It is apparent that many people view investing as a difficult and risky exercise.

In fact, it isn’t very difficult.

Arguably, the first hurdle is to decide what you are investing for. This is crucial as it determines how long you need to invest to achieve your goal, and how much you need to invest.

It has been said before that there are only two ways to make money — by working or by having your assets work for you.

A compelling reason to invest is not to have to work one’s entire life — retirement savings is the most common form of this kind investment.

But there are many other reasons to invest. I, for example, as part of my wider savings, have set aside a small amount to buy shares every month, for at least a year (admittedly a very short time in the investing world), in the hope that it can help fund an overseas trip that I have planned.

Investing is not the same as saving. Contributing to a stokvelevery month, so that you receive the sum of your savings after 12 months, is a form of saving.

Keeping money in the bank, where it earns relatively low interest, or in your back pocket, are other forms of saving.

But by investing, you get your money to generate more money, hopefully more than the rate at which other prices are increasing (inflation), by earning interest or dividends on what you put away, or by buying and selling assets that increase in value.

There are myriad ways to invest. Every investment carries with it a different kind of risk. There are thousands of investment products and services, and most big financial institutions have gone out of their way to make products easily accessible for big and small investors.

You can invest large amounts of money all at once, or in smaller monthly increments.

You can buy shares, precious metals, property, unit trusts, put your money into your own small business or invest in a combination of these.

It is not advisable to borrow money to invest: it usually means you are already struggling to cope with your finances because you have no savings.

Borrowing to invest also means you will have to earn a return on your investment that will not only have to beat inflation, but also cover the interest rate at which you borrowed, before you even start to make some returns on the investment.

It is also better not to invest in companies that are not listed on the Johannesburg Stock Exchange, or in investment companies that are not registered with the Financial Services Board.

Stock market shares are easily tradable and the companies and market are well-regulated. Information about listed companies is also freely available.

Be especially wary of investment products that offer sky-high returns that are out of kilter with average returns on formal markets.

Invest with a long-term goal in mind. International investment guru Warren Buffett said: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

It is vital to understand the costs of your investment. In my case, as an example, I used the share trading platform of my bank, which claims to be the lowest cost share trading platform.

It is imperative to decide how much risk you wish to take on.

This is an important point.

For example, a friend, facing a potential shortfall on her retirement funds, decided to invest in a portfolio that was structured to produce relative higher returns.

However, being elderly and with a history of a nervous disposition, she found herself closely watching the performance of her shares every day, and worrying about every jolt in the market.

She sold her investment long before it had time to gather the returns she had wished for.

Seek out a reputable investment adviser or financial planner to help assess your investment needs, particularly when it comes to large sums of money.

Researching and keeping track of one’s investment is crucial, even if you invest at the advice of a top financial planner.

The internet has much information on how to start your invest journey.

You may, as many other people have, find that it becomes a fun and rewarding part of your life.

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