Investors in South Africa are spoilt for choice and have over 1,500 unit trusts to choose from.
All this choice, however, isn’t necessarily a good thing and the average investor can rightly feel overwhelmed.
How do you then go about investing for your savings goals? Perhaps you should rather ask what it is that you can control when it comes to investing.
Horror stories of investors that lost everything due to market collapses and the unscrupulous behaviour of some so-called advisors, do very little to help instil faith and trust in the financial services sector.
This distrust lead investors to avoid the market, to keep their money in cash or even worse, under their mattress, which over the long term could leave them worse off in their retirement years.
If you feel powerless and intimidated when making financial decisions, keep the following factors in mind that are within your control:
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Define your Savings Goal
Your savings goal is something that you should define from the beginning and stick to.
When saving for your children’s education, a wedding or overseas holiday, give your goal a name and use it solely for that purpose.
Don’t use the money in your “education goal” for your “new car goal”, rather start a new goal and save for the car. Define your goals and know what you are saving towards.
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Your contributions
The amount of money you contribute towards your investment should be something you can afford and manage.
Don’t over commit, but rather ensure that you have the money available to invest. A sound monthly budget will help in seeing what you earn and what you spend, and what is available for saving.
The more you save the better and only you have the power to decide how much that will be.
When you fall behind on your savings goals, one of the best ways to get back on track is to top up your investment with some additional cash.
Setting up a monthly debit order that goes towards your investment goals will help you to not fall behind.
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Your time horizon
The amount of time that you will be investing for is in your control.
It is important that you choose and then stick to your investment time horizon i.e. how long you will be saving for.
If you are investing for ten years, then you need a different strategy than when investing for two years.
The time horizon plays a major part in your overall investment plan and amongst others will play a part in where your money should be invested.
The chopping and changing of your time horizon could have negative consequences for your investment and it is therefore wise to stick to the chosen time frame.
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The level of risk you take
Risk is something that occurs within every single investment that you make.
Even investing in cash has risks, like not beating inflation over time. You will never get away from risk, but understanding risk and ensuring that you don’t take too little or too much will ensure you are invested in funds that are right for you.
Understand and be comfortable with the level of risk that you are taking.
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Your investment advisor
You have the power to hire and fire your advisor. Ensure that you are comfortable with what your advisor offers you. Find out how much they charge to manage your funds and what kind of service you can expect in return.
One thing that nobody can control is what financial markets and stock exchanges around the world will do in the future. It is impossible to accurately know what kind of future performance one can expect from the markets.
However, staying in control of the things you can when setting up your investment can help simplify the rather complicated investment universe and ensure that you are invested in the right funds.
Investing has powerful long-term benefits if you stick to your original plan and carefully control the things that you can right from the start.