Let’s face it. Investing can be massively intimidating. I certainly thought so – and still do, to an extent. Despite this, it’s something we all need to face as we work to improve our personal finances.
So let’s start at the beginning. What is investing?
Simply put, investing is a way of saving money and building a future for yourself, through assets and equities – property, shares. Over time, these increase in value and provide you with returns. Essentially, it’s about building your wealth over time.
Not only are you able to grow our money, but you also manage to keep inflation away from your hard-earned cash.
Most people invest for a specific reason. Things like retirement, buying a house or even travelling. Sit down and think about what you’re saving or planning towards. Saving for retirement is a long-term goal, while travelling is more of a short-term goal.
Once you’ve narrowed down what you’re investing, there are a few things to get out of the way first. Start with paying off your debt. Not only do you free up more space within your budget, but you get rid of the pesky interest charges that come with credit card bills and loans.
As discussed last week, an emergency fund is essential. This will help soften the blow if you’re dealt a terrible hand.
Once you’re ready to invest, speak to an expert or financial consultant beforehand. Their expertise will prove invaluable, giving clarity to murky waters.
Now, how much are you prepared to invest? Whether you have R1,000 or R10,000 a month to start with, there are myriad options to suit your pocket. Of course, you could also save up a lump sum and invest it in one go. But as Johan Steyn explains below, there’s ‘no benefit in delaying investment’.
There are many options available to a beginner investor. You could go through a financial advisor – which means taking your time and searching for a trustworthy individual – or you could go at it yourself. Platforms like EasyEquities makes it really easy for first-time investors, also allowing you to invest as much as you want, whenever and wherever you want to.
The platform even offers a demo account, that allows you to play around on the stock market with dummy funds – exposing you to the markets without any of the risk.
Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University shares his expert advice by providing answers to your questions.
I do not see a benefit in delaying the investment decision, unless you are concerned about overvalued markets and fear a pullback in the short-term. In that case, you may want to stage the investment by not investing it all in one go. However, it is very difficult to time the market. If you are investing for the long-term, it is the time invested in the market that is important. If you are concerned about the impact of transaction costs and fees on smaller investment amounts, the good news is that it does not have to be such a big worry anymore. With the different options available in terms of investment platforms (like EasyEquities), you can start investing with smaller amounts and do not have to wait until you have a bigger amount saved up. Also, most unit trusts have minimum investment amounts of R10,000 and minimum debit order amounts of R500, if you want to go that route.
Firstly, the impact of Covid-19 and the fall in REIT prices was very difficult to predict. Many investors experienced big drawdowns in their investments. However, those paper losses do become realised losses as soon as you sell. It is a natural, human reaction to want to stop the losses after seeing such as steep fall in the market. So don’t beat yourself up about it. Whether it was the correct decision depends on the outlook for listed property going forward, especially relative to other investment options. It is clear that the property sector took a big knock, and it is not certain that it will see a recovery soon.
With rental income under pressure, vacancies increasing, and high debt levels, chances are that REIT performance will remain muted for a while. Considering the appropriateness of the asset allocation and diversification levels in your portfolio, it seems that it was necessary to rebalance the portfolio anyway. I think your experience emphasises the importance of diversification in an investment portfolio. A concentrated position of 75% in one asset class was clearly not appropriate, especially for your risk tolerance. Try to learn from the experience without dwelling on the past, or the losses, and try focus on looking forward.
- Johan Steyn, CFA is a lecturer in investment management, from the department of business management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management.
Have a question about share investing? Write to me at [email protected].
Read also:
- The importance of emergency savings – On the Money with Jarryd Neves
- Killing bad money habits – On The Money with Jarryd Neves
- Planning for a comfortable retirement – On the Money with Jarryd Neves
