DURBAN - The path to financial freedom begins and ends with saving and investing.
Earning well does not ensure that you will be well off when you retire especially if you are an athlete or a celebrity.
Many people can fall prey to simple investment mistakes although the situations may be different.
Some mistakes- that people make when investing their money:
1. Incompetent diversification: which means too much exposure to individual investments.
2. Being too safe in your asset mix: long-term investors putting a lot of money into defensive, low growth assets.
3. Market timing: which basically means determining when to move money in and out of cash.
4. Choosing your manager: investing with fund managers who do not perform well.
5. Paying too much on fees: more than 1% yearly.
Ester Ochse, a product specialist at FNB Advisory, said one of the biggest mistakes that people make when investing is not choosing the correct asset allocation.
"When one has a longer term horizon, there needs to be more exposure to growth assets such as shares and property. The shorter the time frame the more exposure one needs to less volatile assets.".
Another mistake that people make according to Ochse is that people try to time the market. Ochse said "The old adage of its time in the market rather than timing the market is important".
She also said that there is a difference between saving and investing. "Saving, this is more short term in nature, money that one is going to use within the next two years. Investing on the other hand is longer term in nature and is for creation of wealth and financial independence".
Ochse's advice regarding investments:
1. Make sure that you get proper financial advice.
2. Ensure that the asset allocation is correct for the time frame that one has from retirement.
3. Make sure that there is proper diversification of the various assets in the portfolio to smooth the returns over the long term.
4. Ensure that there is access to short term / emergency funds so that if there is an emergency you are in a position to financially withstand that.
5. Ensure that you review your portfolio at least once a year in conjunction with a financial planner.
6. Ensure that you stay invested throughout the term and avoid ad hoc disinvestments. Disinvestments will negatively impact your ability to reach your goals
- BUSINESS REPORT ONLINE