5 Smart investment tips

Getting your money to work harder for you is an excellent way to create wealth. Saving is valuable, but it doesn’t generate the type of returns an investment can over time. For this reason, it’s a good idea to learn how to invest.

Whether you’ve just started working, you’ve received a windfall, or you’re already investing, this article can help you make smart investment decisions and avoid some common pitfalls.

Tip: A wide range of investments can achieve your financial needs and goals. Find out more, or start investing today. 

Why is investing important?

Investing is a long-term strategy that helps you increase your wealth through the power of compound interest - meaning, your investment returns start earning returns of their own.

Growing your wealth is the only way to keep pace with inflation, and offset the continuous increase in prices over time.

Should you DIY invest, or engage a financial adviser?

DIY, or do-it-yourself investing means managing your investments without the guidance of a financial adviser. According to Jaco Prinsloo, a senior financial planning consultant at Alexforbes, the wealth of free information available online makes this possible. You can start small, learn at your own pace, and save on adviser fees. However, caution is needed.

“It’s crucial to note that investing without a financial adviser comes with risks,” Prinsloo says. “Lack of experience and emotional biases may lead to mistakes that result in you losing money and jeopardising your financial security.”

Smart investment tips

Smart investing entails making the right choices to meet your specific needs; helping you to achieve your future financial goals, says Albert Louw, practice manager at INN8 Invest.

“It allows you to create an additional source of income, provides for long-term financial security, and helps create sufficient post-retirement funding.”

The following investment tips can help you achieve long terms goals:

1. Start early

The golden rule is to invest as soon as possible, to ensure solid returns on your money, and make the most of compound interest.

“Compounding allows your account balance to snowball over time,” says Louw. “Reinvesting the interest yielded can generate larger sums of money, allowing you to build a robust financial portfolio.”

He notes that time is one of your most significant assets, so using it for financial gains is wise.

“Don’t wait until you’ve saved up a lump sum to invest,” says Nicole van den Munckhof, a certified financial planner at Independent Securities.

“Forced savings via a monthly debit order allow you to consistently obtain exposure to financial markets. Many new investors find a monthly investment in a broad-based, low-cost exchange-traded fund (ETF) to be a good starting point.”

2. Have a plan

Having a plan prevents you from making irrational decisions and learning the hard way.

“A game plan removes emotions from the equation, allowing you to make the most of potential market opportunities and preserve your assets when the markets are volatile – that is, when prices fluctuate wildly,” Louw points out.

A financial adviser can help you to diversify your investments, spreading them across asset classes such as stocks, bonds, property, and cash, to reduce risk and increase the potential for returns, says Prinsloo.

3. Monitor your investment

It’s quite usual to see losses in the short term but gains overall. For this reason, it doesn’t pay to try to “time the market” or move your investments on a whim.

“Volatility is inherent in equities, but long-term investors are willing to allocate funds to risky assets because the short-term ups and downs don’t compromise long-term growth,” notes Louw.

That said, a financial adviser may have a compelling reason to switch your portfolio, so be guided by the professionals, should you be working with any.

4. Be patient

“Good things come to those who wait” can prove true with investments.

“Most investors look for immediate profits, but such haste can lead to significant financial losses,” Louw warns. “Investing is a long-term exercise precisely because it takes time to build healthy profits.”

5. Avoid the herd mentality

It’s easy to follow what others are doing, especially if they appear to be making a lot of money. However, you don’t know how they’re doing this – they could be using credit to fund their lifestyle or participate in a pyramid scheme.

“Financial goals are subjective, so set goals that will help you to meet your financial needs,” Louw recommends. “Following a ‘hot tip’ that everyone else is getting behind is likely not the wisest choice.”

Tips for first-time investors

Prinsloo and Louw offer additional tips for those who are getting started.

• Become financially literate. Learn the basics about investing from online resources, books, and courses.
• Set financial goals. What are you investing for? Do you want to plan for retirement, buy a house, or grow your wealth over time? Clear goals will help you make better, more informed investment decisions.
• Create a budget. Draw up a budget and understand your income, expenses, and savings. This will help you determine how much you can afford to invest without risking your daily living needs and emergency fund.
• Start small. Once you’re in a position to save R500 a month or more, consider investing in a goal-based investment product such as a retirement annuity, a tax-free savings account, or a unit trust investment.
• Be vigilant. It’s easy to lose money on fly-by-night companies or get-rich-quick schemes promoted by “influencers”. Always invest with a registered financial services provider, which can include reputable DIY platforms.
• Seek professional advice. If you’re unsure about investing or have complex financial goals, it pays to enlist the help of a qualified financial adviser who can create a customised investment plan for you, and help you navigate the investment landscape while you work towards achieving your financial goals.

Tip: Find out more about a tax-free savings account, which can help you beat inflation by growing your money over time.