People often ask me where they should invest their money. The answer is that it depends on the details. Every investment decision is a combination of factors unique to the investor. Ask yourself a series of questions before you decide how to proceed:
- Do I need a financial advisor?
Financial advisors don’t make investment decisions for you. They advise you on the best way to invest your money and you make the decisions. Ask this question in context of how much money you’re investing:
R500 – if you’re a novice, this is your first foray into investment, and if you want to become a regular investor, it’s a good idea to start a relationship now with a financial advisor who can help you grow a portfolio.
R50 000 – even if you believe you’re a savvy investor, a financial advisor can always offer an alternative perspective. It’s their job to stay on top of the latest investment offerings in the market and guide you to help you achieve your investment goals. If the R50 000 is a once-in-a-lifetime windfall, don’t take a chance on making the wrong decision: contact a financial advisor.
R5 000 000 – this is a sizeable sum in anybody’s wallet. Don’t even think of investing this money on your own: get yourself a financial advisor ASAP.
- What is my investment objective?
You need to look carefully at what you’re trying to achieve to ensure you make an appropriate decision. Some of the main reasons for investment are:
- Buying an expensive item like a luxury car in the near future
- Long-term capital growth
- Capital preservation
- Investing for retirement
It’s important to remember that buying a luxury item is different from saving for retirement. The luxury item is something you want, whereas being able to afford your retirement is necessary.
You need to be careful when investing for long-term capital growth, even more careful if you’re trying to preserve capital (especially if it’s a limited amount), and most careful when you’re investing for retirement.
- Can I afford to invest?
There is no such thing as ‘get rich quick’ – always remember that if it sounds too good to be true, it probably is. However, investing for your future is essential, so invest the maximum amount of money you can realistically afford now.
If you’re going to invest R500 per month, start by reviewing your budget. Be ruthlessly realistic and make sure you add details like bank charges and entertainment costs. Review your budget every month because expenses are not static. We can all cut back on something – even if that means buying the lesser-known brand name groceries or not eating takeaways – to ensure we have something to put away each month. You’ll be surprised at how forgoing the spend on that habitual morning cappuccino could accumulate over the long run.
If you have R50 000 to invest, be very sure that you can afford to lock the sum down for the medium- to long term (five to ten years at least), because you won’t get the full benefit of the investment if you need to unlock it before it is due.
If you’re investing R5 000 000, you’re operating at a different level and the presumption is that affordability is not an issue. It’s also most likely that your investment will take several different forms which will realise benefits at different times, depending on your objectives.
- Do I have an emergency fund?
At the level of R500 and R50 000, before you start investing it’s a good idea to lay a foundation of saving for a rainy day. If you lost your job, how long would it take you to find a new one, realistically? You need enough money saved to cover your living expenses for this time period. Even if you’re investing R5 000 000, any good financial advisor would prefer that you have funds at your disposal should you suddenly be faced with an expensive disaster.
- How long will I be investing for?
The term of your investment will influence how your funds are allocated. If you have R500, your funds are likely to be allocated to one investment to make a meaningful difference to the growth of the money, so the term of the investment is not immediately important. This changes if you’re investing for your retirement because that has a finite end date.
If you’re investing R50 000, you have some margin to allocate funds to different investments for different periods of time, and this applies even more so if you’re investing R5 000 000.
Once you’ve answered these five questions, you’ve got the basics in place and can consider where you should invest your money.
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