Four investment tips to get you started in 2021

The creation and preservation of wealth is a highly specialised discipline. It takes a number of factors into account including risk, taxation and liquidity to ensure that your investments are appropriate to your needs and circumstances. Understanding investment risk is one of the keys to investing successfully because any investment decision carries some risk.

Here are four tips to get you started in 2021

1. Don’t try to time the markets

1. History is littered with the catastrophes of those who have tried, and failed, to time markets accurately.  It’s time in the market and not timing the market.
2. When it comes to investments, it is most important for investors to understand inflationary risk and market risk, and the relationship that they have with one another. Inflationary risk is the risk of inflation eroding the real value of an investment over the long term. As a general rule, in order to protect against inflationary risk, experts recommend that investors expose an appropriate portion of their investments to more volatile asset classes such as equities where it is envisaged that the funds will not be required for at least 5 – 7 years. Conversely, in order to protect against market risk, it is important to invest capital in less volatile asset classes such as cash where it is anticipated that this capital may be required in the short term. An investment strategy should take these risks into consideration and should ensure that the investment is appropriately allocated to equities, bonds, property and cash based on the investors requirements.
3. Once an appropriate asset allocation for the investment is determined, it is possible to determine the return that the investor can expect from the investment over time. This expected investment return is critical to the assumptions used in the financial planning process. The role of the financial planner should be to assist the client in understanding whether the investment is on track to reach the assumed return or not. Should there be discrepancies, the financial planner should be able to explain these to the client.
4. Research has shown that the most important decision in determining investment return is that of the determination of an appropriate strategic asset allocation for the investment. In most cases, it will be appropriate to split the investment among the various asset classes. Attention should also be paid to whether it is appropriate to invest a portion of the assets offshore.
5. Attention should only be paid to fund choice, once the financial planner and the client agree on the strategic asset allocation.

1. It’s a long-term strategy that reaps the most results. Start early and plan right, right from the start.

1. One must be careful to say that it is long term that yields the best results. It is true that the return of an investment that is exposed to risky asset classes will become more predictable over time and further that the investor ought to be rewarded with an enhanced return for taking on the additional risk. However, certain other investments may only be intended for a shorter time period. The funds will still be invested, albeit in more stable asset classes, for the period required and the return may be very acceptable in the context.

1. Value the significance of an external, objective view

1. Emotions play a role in investing, particularly when outcomes can be significantly life-altering.  However, it is important to remove emotional influences when investing – that is why a professionally skilled and objective, external view is vital. Even the most experienced financial planners need to appoint another financial planner to conduct a thorough financial needs analysis. Just like a medical doctor who does not examine him/herself, a financial planner should also seek an objective view about their personal financial plan.

1. Choose the of best funds and vehicles – diversify broadly

1. Make sure you have in place, the highest set of criteria when determining best funds or vehicles within requirements.  Diversification is always key, but determine what represents quality, value and appropriateness and apply evenly.
2. It is important that financial planners see their role as assisting the client to determining an appropriate investment planning strategy. Financial planners are not asset managers and should not fall into the trap of making promises to clients about specific fund performance.