Article: Anna Malczyk and Gareth Cotten
Investing is one of the best and most rewarding ways of growing your
business and personal wealth. However, the process can be very complex and is
governed by obscure terminology and complex legal practices – and investing in
the wrong things can cost you dearly. Here are five simple tips to getting you
started on the right investment path.
1. Do some research
Never go into an investment blindly. Before you commit any of your
money, do some research into the various types of investments, how risky they
are, their projected returns, and if the options are right for your situation
and needs. Informing yourself is a good way to protect your money and to make
sure you don’t lose out to flashy but empty promises.
2. Diversify
In investment jargon, diversifying means putting your money into
different types of investments rather than all into one type. This is a good
strategy because it prevents you from putting all your eggs in one basket and
risking your capital on a single venture. It a good idea to choose a wide range
of investment types (stocks, property, bonds, cash and others), as well as a
range of companies or projects in each type.
3. Get good advice
Never underestimate the value of good professional advice. While it may
seem like a waste of money to consult with an investment advisor or to invest
through a specialist company, you run the risk of losing much more by not
benefitting from their extensive advice, experience and guarantees. Having said
that, make sure you understand their fee structures, and remember that almost
everything is negotiable.
4. Only invest what you can afford
The inescapable truth is that any investment, no matter how low risk,
has the potential to lose some or all of your money. Therefore, you should only
ever invest non-essential capital; don’t sell your house or risk your
children’s university fund on an investment venture. Rather, spend more time
saving up and use only surplus capital to increase your investment amount. If
something goes wrong, you won’t lose your livelihood.
5. Go in for the long haul
Investing is the opposite of instant gratification. Investments need
time to grow into profitable revenue streams, and year-on-year compound
interest will only earn you good returns if it is allowed to remain untouched
for an extended period. One-year investments are only likely to bring small
returns. Generally, you should not touch your medium-sized investments for at
least 5 years; any less time will dramatically decrease your chances of solid
returns. Put your non-essential capital into a long-term fund and wait to reap
the considerable rewards in future.
The UCT Financial Management for Non-Financial People course
starts on 16 August 2010. For more information contact Karin on 021 685 4775
or karin@getsmarter.co.za, or
visit www.getsmarter.co.za
Do have any investment advice of your own? Share it with our readers in the box below.