A Fin24 user has a general question about investments. He writes:
I need advice on what the best option would be to invest in.
Craig Torr of Crue Invest responds:
Investments is a very broad area of financial planning and therefore, in answering this question, we are going to address some basic investment principles aimed at getting a young professional on the right track when it comes to implementing a sound investment strategy.
Because time plays such a critical role when investing, our first piece of advice is to begin investing with your first pay cheque, or as soon as possible afterwards. Early investment planning allows your investments to harness the power of compound interest to grow your money exponentially over time.
Once you have made your decision to begin investing, we recommend that you consult with a fee-based Certified Financial Planning® (CFP®) professional. A fee-based professional will be able to provide you with completely independent investment advice and, because they are not remunerated by hefty commissions, will be able to provide you with advice that is in your best interest.
During your engagement with your planner, you should define and document your short, medium and long term goals. You should also discuss with your planner your propensity for risk, and ensure that you have a full understanding of how the stock markets work.
When investing for your retirement - that is long term investing - it is absolutely essential to invest in a formal retirement fund so as to take advantage of the tax deduction that is afforded to investors. Legislation allows investors to invest up to 27.5% of their taxable incomes - up to a maximum of R350 000 per year - with before-tax money – which is a significant benefit.
If you begin investing for retirement at the outset of your career, your long investment horizon will allow you to expose your money to more investment risk. We advise that you invest only through a reputable unit trust platform which offers competitive fees and investor flexibility, and your CFP® professional should be able to advise you appropriately on this.
The next step would be to set up an emergency fund which is equivalent to between three and six months’ income. This money should be kept in an account separate from your day-to-day transaction account, and should be ear-marked for unforeseeable expenses that may arise.
When investing for short to medium term goals such as a vehicle purchase, an overseas trip or a deposit on a property, your CFP® professional will be able to advise you on an appropriate investment strategy, bearing in mind that you would not want to expose these funds to too much market volatility.
If you intend accessing these funds in the short to medium term, it would be prudent to invest in a lower risk unit trust investment which provides easy access to your money.
As a general caution, we advise that all potential investors protect themselves from investment scams by ensuring that you only invest through reputable investment houses. If you are unsure about any potential investment, we strongly recommend that you ask your CFP® professional for an opinion.
Human emotions such as greed and fear can adversely influence one’s investment decisions.
Our final piece of advice is to ensure that your CFP® professional documents a comprehensive financial plan for you, and that you work together to ensure that you don’t deviate from your road map.
Do not allow yourself to be swayed by short-term market volatility that is driven by political and economic turmoil. Rather stay focused on your long-term goals and develop a long-term relationship with a trusted financial planner to ensure you stay the course.
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investment decisions made based on the advice given by independent
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