17 Nov Investing money advice – 10 simple, sensible tips
The Weekender / Business Day 25/26 April 2006
The best investing money advice you will find is that it is never too late to start. Whether you are working or retired, with some common-sense advice you should be well on your way.
One thing I can state with certainty is that money does not make people happy. But it can help to enjoy life.
Being in control of your money can help you to feel happier. A few minutes spent writing down what you would do if you did not have to work may help you understand what your lifestyle goals really are – but be realistic.
When you are able to visualise what it will feel like, the next step is to write down what you need to change in your daily behaviour to get there.
Investing money can be an intimidating experience. There are many choices and few certainties in the investment world. Human emotions can override logical choices. It is important to stick to some basic rules and investing advice. Give your money the best chance of making more money.
Tip 1: Seek professional advice
Even the most financially astute investor can benefit from professional advice. It is best to select a fee-based financial planner. A professional financial planner can provide an objective framework within which investment strategies can be evaluated and discussed. Investors who fail to plan, plan to fail. For your own protection get the professional investing money advice in writing.
Tip 2: Understand your financial plan
Clever investors ask stupid questions until they understand exactly what they are investing in. An investment should always be made within the context of an overall financial plan. If there is no strategy, it is speculating and not investing. Short-term market fluctuations don’t worry investors who are investing long term.
Tip 3: Maintain flexibility
Our lives can change in the blink of an eye. Retrenchment, illness, personal relationships – we all know that change is inevitable. Your personal circumstances, investment markets and financial legislation will change over time. Make sure that you can rearrange your investments quickly and cheaply without penalty.
Tip 4: Never put all your eggs in one basket
Remember it is impossible to always sell a share high and buy low. Anyone who claims that they can is lying or bragging. Common sense says that your investments should be spread across asset classes (shares, property, cash, bonds and alternative strategies) and asset managers. The greater the diversification, the more resilient your overall portfolio will be to serious financial loss.
Tip 5: Use compound interest to your advantage
The automatic reinvestment of the growth on your investments will lead to ‘growth on growth’. The longer the investment time period, the more significant the compounding factor becomes. This is because your interest earned becomes greater than your regular investment premium.
Tip 6: Protect the purchasing power of your money
Although the threat of inflation has reduced in recent years, it remains the biggest threat to your money. Overly conservative investment strategies such as leaving all your money in a bank savings account will erode the real value of your money over time. Retirees should pay special attention to this rule as they can no longer protect their overall wealth by demanding more money for their labour.
Tip 7: Use the taxman’s generous incentives
A colleague of mine, Richard Sparg, advises that if you can save income tax and invest at the same time you will be killing two birds with one stone. The Receiver of Revenue has granted generous tax breaks to retirees in recent years. A retired couple now requires significant capital before they have a tax problem. The tax-saving incentives are on a ‘use it or lose it’ basis during your working life – if opportunities are not taken in a particular tax year, they are lost. My investing money advice is that retirement annuities and provident or pension funds are still the best investment vehicles. If correctly structured, they save tax, which increases your investment return without increasing the risk.
Tip 8: Keep your finger on the pulse
You should revisit your financial plan and related investments on a regular basis (preferably once a year). A good professional financial planner will proactively facilitate the review process. I have found that most successful investors welcome a regular face-to-face visit to discuss their personal investment planning throughout their lifetime regardless of how well their funds are doing. It simply makes good sense to be proactive in regularly asking for investing money advice.
Tip 9: Pass the sleep test
If your investments are keeping you awake at night, then you are either taking too much risk or are unsure about what you are doing. Uncertainty or fear could result in a bad investment decision. Get additional investing money advice as a second opinion or revisit the initial reasons for the investment if you are unsure.
Tip 10: Consider carefully investing after-tax money if you have debt
The reason for this is simple: the cost of the debt is often higher than the after-tax return on your money. Short-term debt such as credit card debt can be particularly expensive. If you have a bond, it is a good idea to pay it off as quickly as possible. You cannot eat your home so beware of upgrading it once it is paid for or you could be over-capitalising. There is justification for investing a portion of your surplus after-tax funds in a long-term, after-tax investment vehicle, such as a unit trust.
This investing money advice is not rocket science and you will find that using these tips to assist with making the right investment choice very easy.
Debbie Netto-Jonker CFP® is the founder of Netto Financial Services and was Financial Planner of the Year in 2001.