If you haven’t invested before because it just all seems too complicated, this guide is for you. Read on to achieve financial peace of mind and your dreams, writes Glynis Horning.
Why should you invest?
It’s simple: the only way to make money is to work for it, or make it work for you. If you keep it in your purse or just sitting in the bank, you’ll never have more than what you save. But if you invest it wisely, it will generate more money by earning interest.
Saving Vs Investing
When you save money, you set aside the cash you don’t need now in a place that is relatively free from risk so that it’s sure to be there for a rainy day. You know you can access it at the drop of a hat; however, the financial returns tend to be quite low.
When you invest money, on the other hand, you buy assets such as shares, unit trusts or property in the hope that you can later sell it for profit. This is a riskier business, as you could lose the capital altogether, but you might receive higher returns in the long-term if it pans out in your favour.
How can you start?
Set a goal to motivate yourself to invest rather than spend. It could be to retire comfortably, to buy a car or house, finance a wedding or a child’s education, or simply to have a holiday or hot new iPhone.
Aim to invest around 10 — 15% of your income for retirement (your employer may pay half), and 5 — 10% for other goals. Draw up a budget for this and make sure you stick to it, says Cape Town financial planner Debbie Netto-Jonker.
Who can do it?
There are many ways to invest, but to find a safe and reputable option that’s right for you, consider teaming up with an independent financial adviser. Contact the Financial Services Board for a list of those accredited with them.
The adviser may charge fees or commissions, but they should remain unbiased, says Durban financial planner Sandy Wingfield-Turner.
Major financial institutions will direct you to investment products they consider the most appropriate, but in general may not provide advice. Netto-Jonker advises that you try to get a referral from your parents, boss or colleagues.
What should you invest in?
There are two types of investment products: short term, such as a fixed deposit with a bank, an endowment policy, unit trusts and savings bonds; and long term, for five years or more, such as a retirement annuity and certain savings bonds.
Aim to have a spread of these investments, says Wingfield-Turner. A fixed deposit in a bank is a safe way to invest a lump sum for between a month and five years, but interest rates are relatively low.
It can work well if you’re simply saving for a new laptop or holiday, says Netto-Jonker. An endowment policy grows your money to a tax-free lump sum you can take out after
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