12 Things to Consider When Investing

Investing is a serious business and can be fraught with pitfalls – for novices and experienced investors alike. Here is a reminder of some investment basics.  

1. Accept that mistakes can be made. But you can learn from them and be better equipped going forward. 

2. Don’t take economists’ predictions as gospel– they can also get it wrong.   

3. Expect the unexpected. There will be war, political unrest, poor leadership, Covid…“We can’t predict the future, but we can at least factor in possible or likely future events and potential future variables,” says Anthony Palmer, Group Commercial Director at Carrick Wealth. 

4. “Before you look to make money, you should first look to protect what you have. Two of the biggest threats to your money – and often overlooked – are inflation and taxation,” saysPalmer. 

5. Know your risk profile..Every individual is different, and age or life stage has very little to do with your investment risk profile. Your risk profile is determined by three factors: 

• Risk tolerance:your inherent appetite forrisk; 
• Risk capacity:linked to your financial ability to take on risk; and
• Risk required:how much risk you need to take on to achieve your desired investment outcomes.

6. Keep it simple. Start with asset classes that have always outperformed inflation in the long run. Then compile a portfolio of these asset classes (diversification) where one will typically go up when the other goes down, therefore smoothing out the volatility. 

7. ‘Expensive’ doesn’t necessarily mean better, nor does ‘cheaper’. Seek value for money. 

8. Understand theoptions available to you. A financial advisor can help you navigate equities, pension plans, savings plans, money markets and foreign exchange, investing in property, the different asset classes, tax efficient investment, getting past short-term volatility with a long-term investment horizon, and diversifying your investment to hedge against shocks.  

9. Diversify.One of the key tools to minimise investment risk is a diversified portfolio: spreading your investments across asset classes, geographies, currencies and industries is one of the few time-tested strategies for investors with long-term financial goals. By expanding your exposure to global markets, you’ll enjoy more global opportunities, greater diversification and more protection against local currency devaluation.  

10. Understand what is meant by being truly offshore. Having a truly offshore investment means you enjoy the diversification, protection, growth, tax efficiency and foreign currency stability you’re looking for; as opposed to an investment that may look like it’s offshore, but where your investment rands never actually leave the country. In a truly offshore investment structure, your investment is housed in a safe, politically stable and highly regulated jurisdiction, and your rands are converted into that country’s currency.

11. There are times to be ‘active’ and times to be ‘passive’.Investment is a long-term game. If you try to time the market by buying when assets are cheap and selling when assets are expensive, you’ll inevitably get your fingers burned. More often than not, the opposite happens: you end up buying at the wrong time or – worse still – selling at the wrong time, locking in your losses. 

12. Don’t panic. Stockswill fall and they may rise sharply. Don’t buy and sell on emotion instead of logic – be patient and sit it out. Panicking during a crisis is a bad enough mistake. Panicking alone and acting without the guidance of an expert takes a bad mistake and makes it even worse.