The First Steps Of Your Wealth Journey

Ready to invest, but don’t know where or how to start? Cover these basics first.  

You don’t have to be an MBA graduate or a financial wiz to start investing. While it may seem intimidating at first, if you cover the basics you’ll set yourself on a path to lasting success. As Carrick Group Commercial Director Anthony Palmer says, “Instead of getting paralysed by trying to cover every possible aspect of retirement planning perfectly, for example, rather break it up into simple, executable basics – then cover the basics excellently.”  

1. Manage your debt

Some debt is good (like, for example, a manageable home loan). But it’s all too easy to fall into the debt trap, where you’re forever falling into new, unnecessary debt. Sort that out, before you start investing. “If you have any high interest rate loan or credit, there is no point in investing just yet,” says Palmer. “It’s better to pay off debts, since you’ll be spending a greater amount paying interest on your debt and will struggle just to ‘get ahead’.”  

2. Save and invest

Whether it’s short-term treats (a holiday, for example) or long-term plans (like your retirement), make a list of your financial goals and start actively working towards them. You can’t start soon enough. Compounding interest weaves its wealth-growing magic over the long term, so the earlier you begin investing, the better. Speak to your trusted financial advisor and make full use of the government’s various savings mechanisms. In South Africa, you’re allowed a tax deduction for contributing into a retirement annuity, and you can also enjoy significant tax-free savings. They’re there, so take advantage of them. 

3. Invest in what you understand

Investment guru Peter Lynch once said that one should “never invest in an idea you can’t illustrate with a crayon.” He was right. When you’re starting out it’s best to avoid overly complex investment products or industries that you aren’t familiar with. Invest in what you understand and understand what you’re investing in. “Knowledge is key to making great investment decisions,” says Palmer. “A few easy ways to start is to attend basic courses on economics, look for courses or YouTube videos on how to analyse company financial statements, or read books on these subjects.”  

4. Diversify

Remember the old proverb of not putting all your eggs in one basket? While you don’t want your investments to counteract each other, you do want a safety net. “The principle of diversification is that when one asset in your portfolio drops in value, another one rises, thereby smoothing the peaks and troughs in your portfolio,” Palmer explains. So spread your investments across geographies, asset classes, currencies and industries, and watch as they work together to grow your wealth.  

5. Have a plan…

Once you’ve identified your specific financial goals, it’s time to speak to a financial advisor about how you intend to achieve those goals. Remember that there is no one-size-fits-all solution. Your investment strategy should be carefully crafted to meet your individual needs, including your goals, your risk profile, investment horizon (time frame), and more. That’s why so many experts recommend bringing in the help of a financial advisor: they’ll take all those factors into consideration and work with you to put a plan together. 

6. … And stick to it

Stocks rise and fall. Markets go up and down. Volatility happens. It’s how the markets work and – stressful as it may be to watch the value of your investments gain or lose value overnight – you’ll have to get used to it. Don’t panic. Don’t buy and sell based on emotion. “It’s important to have realistic expectations of your investments, as not every (in fact, very few) investments will immediately start delivering great returns,” says Palmer. “Of course, when the markets and economy are doing well, there are investments that have great immediate returns, but remember that the markets are unpredictable.” His advice? Be patient.