How do I plan my investments?
Investment planning mainly occurs prior to retirement – however it is also important once a person has retired. It should become part of your
People we talk to often say they do not have spare funds available to invest, but investment planning involves more than this.
Buying a home, vehicle or bach, changing jobs, getting married, educating your children and building up an emergency fund are all examples of investment decisions. There are a number of factors that play a role in each. The current economy as well as economic outlook – giving consideration to aspects such as interest rates, exchange rates, house prices, the gold price and oil price – can influence the decisions of the individual investor. However, no one has control over these factors and therefore we believe it is more important to focus on those aspects that an investor can control.
Risk: is probably the most important factor. Every investor demands maximum returns by taking the lowest amount of risk. Higher risk investments normally lead to higher returns and lower risk investments to higher certainty of capital, but with lower returns. It is therefore important to recognise the compromise between certainty of capital and capital growth.
Liquidity of your investments: It is important for an investor to ensure that sufficient cash is available. For example, if you are looking to buy a business, ensure there is enough cash readily available to secure working capital.
Protection against inflation: it is essential that any investment must provide the investor with protection against the general increase in the price level of goods and services in an economy over a period of time. This will result in positive real returns (returns after allowing for inflation).
During times when inflation is high, investors in “low risk” investments can experience a negative after tax real return. This results in capital depletion.
Tax: plays a definitive role and is therefore important to compare investment returns on an after-tax basis. An investor should also consider how tax effective (or ineffective) different investment options are.
Fees/ Charges: can affect your investment returns and it is therefore important that you understand and compare fees that you’ll be charged. It could save you a lot of money in the long run.