1. Do not delay
Many people think they have lots of time to save – for retirement for instance – and discover too late that they needed a few more income-earning years. Other thinks the stock markets are not doing well and that it is too risky to invest now.
Get organised around personal financial affairs. Take a good hard look at all accounts – current/cheque accounts; savings accounts; debt or loans; retirement and/or pension funds. A full review is the best starting point to see what a most suitable goal for a new year should be. You could have high debt (in relation to earnings) – getting rid of that should be a key focus. Perhaps you’ve maybe ignored saving for retirement for a while? Be mindful of the much longer life expectancy predicted and how this means much more funding will be required to support a lifestyle once a regular income stops.
2. Get an understanding of financial markets and investment options
The investment universe is vast and to some degree complex. There are many different options to select for investment. For instance:
- Cash in the bank in an interest-bearing account
- Investing in stock markets (directly in shares or via funds like unit trusts)
- Alternatives like physical coins, art or vintage cars
Each investment has different characteristics, different returns histories and, very importantly, exposes an investor to different levels of risk.
Make sure you understand what level of risk you can tolerate; review the options and understand it before deciding what is best for your circumstances. Some investors are thrilled by the stock market ups and downs and know by sticking with investments, even when values fall at times, they will deliver superior returns. Others cannot bear the volatility and are happy with the smooth returns something like a fixed deposit will provide, even if its returns are lower (over time) than that of a diversified investment portfolio.
3. Have a comprehensive plan
Sound personal financial management is not only about paying off debt and investing and/or saving. It is about all the matters related to your financial life. It includes risk issues such as: are your belongings and assets properly insured; is appropriate life cover or dread disease cover in place should unforeseen circumstances occur; is your will up to date with your current situation and does it express your wishes for your estate?
4. Be smart about tax
Paying tax is a fact of life, but when investing there are ways to lessen the burden. There are tax benefits for investing in a retirement annuity. Selecting an investment vehicle like a fund of funds offers some protection against capital gains tax (CGT), as switches within the fund do not attract CGT. Speak to a tax advisor who understands the tax rules and elements like allowances for offshore investment, so you can be tax compliant in a smart way.
Historical reviews of investments across different asset classes show that not all asset classes perform the same all the time. In a complex world, there are so many global issues affecting market movements it is impossible to be ahead of the game, protecting wealth all of the time. Over time the stock markets of different regions and industries were, at times, by far the best performers in the global investment universe, only to pull back when some or other international crisis causes investors to lose confidence in that market or asset class.
Diversification ensures that an investor is not exposed to a single asset class, region, industry or investment option. In one year, technology stocks may be the stars of the show, only to be outperformed by say listed properties the next.
To make the most of your money have a plan and consult experts like qualified financial advisors, tax consultants and risk experts to guide you to a solution best for you.