Nicolette’s Nickels:
A few years ago, I dabbled with the idea of investing. In all honesty, the whole concept of putting my money away and not enjoying the benefits of instant gratification was wholly stressful. However, I reluctantly gave it a shot. I walked into a bank and explained to the gentleman assisting me that I had R5 000 that I wanted to invest. He went on to ask if this was a lump sum or to be invested monthly. I gasped at the thought that there were people who had the luxury of investing R5 000 a month. “Once off,” I said. He offered me a couple of options, and we settled on a fixed deposit account over five years. Very impressed and feeling grown-up, I walked out of the bank a novice investor.
Five years later, I was disappointed about the investment as the result was not what I had expected. That put me off investing altogether. Until I tried again later and invested in property and assets. This time around, I had a better understanding; having done my research and consulting the right people, I now knew how investing could make me money.
Remember that investing is for the long term. It may come with risks, and the level of risk may vary depending on where you put your money. However, investing is done to create and preserve your future wealth. You may find that your risk appetite varies depending on the objectives that you have for your investments. If your aim is to make steady returns, then your risk appetite may be conservative; on the other hand, your risk appetite may be larger if your objective is to generate higher returns.
Know your investment objectives
Knowing the ins and outs of investing is essential. You cannot aimlessly throw your money into a basket without knowing why. Athletes do not play a sport just to play; they have specific objectives in mind at the outset. The same goes for your money - you also need to have a goal post in place.
Examples of investment objectives:
- Capital preservation - investing to preserve capital and prevent loss in a portfolio.
- Capital growth / asset appreciation - investing to increase the value of assets over a long period, usually done through companies that have the potential to grow at a higher rate than the market.
- Income generation - investing in a collection of assets that generate income that you may use in your everyday life or reinvest into other assets.
A few tips
If you decided to take the approach that I took, of investing in property and assets, then you may want to make these key points the bread and butter of your investment strategy:
- When doing the transaction, pay as much as you can afford to right now.
- Be aware of any additional fees and costs of the investment.
- Understand the break-even point.
- On property, charge a rental that has a worthwhile margin.
- Reinvest into the investment strategy.
Finally, do not underestimate the use of a fund fact sheet (now called a minimum disclosure document). This is a document offered by the financial institution to the investor to help the investor make informed decisions before investing. It highlights investment objectives, risk classification, top holdings, performance, and asset allocation, among other things, to help you determine whether or not the investment is suitable for you.
Many people are where I was when I started with my first investment, because they just don’t know. Let’s be honest, nobody goes out looking for what they don’t know about. It took me five years to learn that one should never invest in things that one does not understand.
But after setting my objectives, understanding them, and understanding which investment type would help me achieve them, voila, investing worked for me because I knew how to use it to make me money. And it can for you, considering you implement the right strategy from the onset.
Nicolette Mashile is the co-host of the SABC1 talk show Daily Thetha, an actress on Generations and the founder of Financial Bunny, a financial literacy platform. She has recently written a book, What’s Your Move? A collection of ordinary financial lessons.
PERSONAL FINANCE