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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
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