Keep Calm and Invest with care
Investing is not difficult, but to be successful, it requires hard work, due diligence, and following a few rules (so says Warren Buffett). So then investing is a combination of character, informed decision-making, and rules.
It makes sense to invest in a way that is best suited to our individual needs and abilities.
- We need to consider our appetite for risk.
- We need to trust ourselves and know that we will endeavor to respond with logic and not emotion in a volatile market. Fear and greed are the two major emotions at play when investing. With awareness of this we need to be calm and measured in our reactions to stock prices fluctuating, and not make rash decisions.
- We need to be patient, and know whether a specific investment is for the long, medium or short term.
Regarding informed decision-making
In order to invest effectively we need to research the business we are investing in. We also need to keep abreast of current affairs, as events on the other side of our global village could affect the value of investments on our side.
We need to decide which instruments to invest in, and whether to spread the risk over the asset classes, or rather stick to fewer that we know well. There are many options to choose from:
- Savings Accounts & Fixed Deposits (low risk low reward).
- Shares or equities in a company (high risk high reward). Your investment is linked to how well the company does.
- Investment in Unit Trusts which is managed by an expert and is a safer way of investing in equities or other assets, as a pooled investment is split into units, the value of which is linked to the value of all the shares that make them up.
- Exchange Traded Funds (ETF’s) are similar to Unit Trusts in that ETF’s are a pooled investment,. The cost of investing in an ETF is lower because an investment strategy (a passive strategy) is used to choose which shares to invest in rather than an expert.
- Tax free Savings Accounts were introduced in South Africa in 2015. The advantage is that any growth is is not taxed, but there are limits on how much you can invest.
- RA’s, Pensions & Insurance policies are all other ways to invest that can help to save on tax.
- Stokvels are a way of getting people together to save as a group. By pooling resources, members are able to move more towards longer term investment and wealth creation.
Regarding the rules
There are some general guiding principles which if followed can help investors attain long term investment success.
Research the business (and not just the stock you wish to buy in that business) before you invest. Make your own informed decisions, and do not follow blindly what others do.
Keep calm and invest with logic and discipline. Be guided by knowledge, and not led by fear, or by greed. Be patient for your long term investments.
Many advise investing in a broad portfolio over a range of asset classes and financial instruments as it is a lower risk way of earning a good return on investment.
Monitor your portfolio regularly, and stay abreast with current affairs - to see how your investments are doing, and to understand how they could be affected by world events.
In short, go long on knowledge and short on emotion.
Note: commentary here does not constitute financial advice. Please contact your financial advisor for detailed assessments and advice.