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By Renee Eagar*
Investing can be unpredictable, which makes it challenging and stressful. Some rookie investors say the idea of investing without any assurance of a return or the potential of a loss makes them hyperventilate. To make matters worse, according to some scientific surveys people under financial stress can lose as much as 13% of their IQ points. This often translates into poor investment decisions.
With the assistance of an experienced financial advisor, making an initial mistake or two can be corrected, as long as you play the long term game.
The bottom line is that investments do not have to be nerve-wracking, and its importance lies in achieving long-term financial goals.
If you are new to the processor perhaps just need reassurance, a few practical pointers to keep in mind when taking these first essential steps include:
Do not attach emotion to what you read or have been told
In today’s world of information based on social media, instant chats and online news in real time, it is hard not to take everything to heart. But always remember bad news sells.
The best approach would always be to understand what you are invested in and why you are investing and to trust the process.
A severe drop in the market does not necessarily means your investment is down by the same percentage or vice versa, it depends if how much your investment is correlated as an example.
They key is to make informed decision and not an emotional decisions.
Do not check your investment balance everyday
Like you, financial markets are emotional. Which means if you are going to follow the eb and flows of the daily stock market you will be riding an emotional rollercoaster for the rest of your life.
Even worse, you are risking making those spur of the moment knee jerk decisions of panic selling or doubling down that will cost you dearly in future.
Find a cadence of checking your investment performance and returns that you are comfortable with. I suggest a check in every 8 -12 weeks as a good place to start.
Do not try and time the market or expect that of anyone else
Trying to figure out what the best time is to enter or exit the market is an impossible exercise. Even the most successful of traders consider the probability of this practice to fail extremely high.
In fact, studies have repeatedly shown that there is less than a 10% chance of the effort making a profit and almost always results in losses. The consistency of the approach is almost impossible.
Do not ignore fees, but also do not get wrapped up in it
While you certainly cannot avoid fees associated with the investment process, there are ways to reduce it.
Go for what you believe is fair, but do not go it alone. Unless you spend most of your day studying market patterns, an advisor brings financially savvy and this will result in better returns on your investment.
An investment manager will support your ambitions. Despite individuals having access to more information than ever before advice does incur some costs. Using the insight and guidance of an experienced of financial advisor, can save money in the long run in many aspects of a financial nature.
Consolidate while diversifying
Consolidating your investment portfolio makes it easier to track and generally brings down the cost of administering the portfolio, this also in turn also helps align your asset allocation according to your risk profile.
It is imperative to diversify your portfolio of investments. Reward lies in a best mix of stocks, bonds, cash, property and alternative investments across global markets, industries and product sets like value or growth Spreading out the risk provides a cushion to absorb market shocks and smooths out market fluctuations over the long run.
Make an effort to understand how you are invested and according to what criteria
Do take the time to conduct your own research. Before you plunge your money into any investment plan, project or company, it is important to have, at least, a basic understanding of the investment process and the products available to you.
There are times it could be technical, and the process takes time to fully understand, but do not hesitate to contact your advisor for support and shared experience
Once you have selected a reputable expert of choice, trust that this person will have your best interest at heart.
Make full use of investment incentive and tax concessions
As times get tougher, and returns harder to achieve, clients have become more tax aware, especially in a country where the government has left the coffers bare.
It is important that you weigh up carefully where investments such as Retirement Annuities, Tax Free savings, Offshore investing and the like fit into your investment plan and how the benefits affect you personally. Estate planning and the effective drawing up of a Will can also be imperative to save you money over time.
Keep a long term view
A successful investment plan looks to the future. There is no short term gain goal oriented in longer term plans. For instance, compounding interest works to your advantage over time and you will most likely pay less in taxes. Plus, the inevitable ups and downs of the market becomes less significant for those who have settled in for the long haul.
Read more about investing.
- Renee Eagar is a Certified Financial Planner® professional based at Brenthurst Wealth Claremont, Cape Town. [email protected]
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