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This podcast is brought to you by Satrix, a leading provider of passive investment products in South Africa.
You work hard for your money so it’s important to know what mistakes to avoid when investing it. Listen to this podcast as Satrix explains what NOT to do when trying to grow your capital.
Tim Modise is speaking to Candice Paine of Satrix about investing mistakes that one can make. Candice, welcome.
Thanks Tim. Thanks for having me. Investing mistakes really are the thing that you want to avoid if you’re investing for the long-term because every mistake you make it costs you – from a Rands and Cents perspective.
The Satrix strap-line is #JustStart, and the first mistake is really doing nothing, not starting. The sooner you start – the sooner your money starts compiling, the sooner you can start participate in the growth of the South African Stock Market.
And then the next one is being too conservative I suppose, even though you go in but you listen to all sorts of things and what do you mean anyway (about being conservative)?
What we mean about being too conservative is, for example leaving your money in cash right now. If you are keeping your money in a bank account, you are actually losing money because the interest rate you receive on the money in your bank account is lower than the inflation rate. The inflation rate is the enemy of your money. It’s what eats into your capital, so you need to decide upfront what your time horizon is for investing. Your goal for investing, so whether it’s retirement, whether it’s a deposit on a house, whether it’s a car – there are different time horizons for each one of those investments.
You need to take on the risk, commensurate with the time horizon that you have, so if you are too conservative inflation might be eating into your investment and thereby you are actually losing capital, despite the fact that you’re doing the right thing by investing.
One of the other mistakes that you can make is listening to hot tips or stock tips. The internet is full of sites that are for traders. Trading is a very different activity to investing. Trading is where someone is watching the stock market, going in and out, possibly once or twice a day, or three times a week. Investing is for the long-term. You put your money into an investment that you have investigated upfront, you understand. You understand the risk that you’re taking on and you sit there.
For all the trading stories that you hear, where people have made money, there are an equal number where people have lost money because investing in the stock market is a zero sum game. Somebody makes the money and somebody loses the money, so listening to stock tips you need to take with a large degree of caution and we can extrapolate that thinking to trading in your unit trust portfolio.
Research has shown that the buy and hold investor has actually done better, over time, than someone who chops and changes, so what you should do is definitely watch your portfolio and monitor your portfolio but sit on your hands. Try not to trade in your portfolio.
Now, are there any other pitfalls that one should look out for? We’ve identified the few that we have there might be others that we’re not thinking of at this time.
Costs. Costs is a big issue in investing, so every percentage point that you pay away in costs, is a percentage point that could have been included in your portfolio and compounded over time. Satrix is low cost investing because they are passively managed portfolios, where you track an index, but the thing that you need to look at if you’re going to be a ‘do it yourself’ investor are costs.
One of the other things is if you feel like you don’t understand what you’re doing – pay the money for advice. It will save you in the long run, so if you really are overwhelmed by all the information and the products out there. Get somebody to guide you and for that, you are going to have to pay but you can also negotiate that fee, so focus on costs as well. At all costs – avoid making mistakes with your investment and do just start.
Of course. Avoid making mistakes but do stuff – be proactive. That’s the message here from Candice, as we bring you these Satrix Podcasts, and we will be talking about financial freedom in our next podcast.
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