During tough economic times, many South Africans are looking to make some extra cash and this has led many people into the world of investments. According to the 2016 Global Consumer Survey conducted by the Financial Planning Institute (FPI), 76% of South Africans are interested in making sure that their investments are profitable. Sydney Sekese, CERTIFIED FINANCIAL PLANNER® professional, offers the following ten questions that everyone should ask before they make an investment:
Am I financially fit?
It doesn’t make sense to invest money when you have a lot of debt. Concentrate on getting rid of your debt and re-investing your money. This will ensure that you are working towards a goal and not a shortfall in your investment.
What will I do with the money?
You need to decide what you will do with the money that you make from your investment. Depending on what you want to do and how fast you want your investment back, different types of investments will be better suited to your needs.
Do I know my options?
If you’re a first-time investor it is important to realise that you’ll make more money investing in a good mutual fund than you will moving it between stocks. Riskier investments are better for those with a deep understanding of investments and the markets.
Where is the best place to invest?
It’s important to diversify your investment portfolio as this protects you if one market performs poorly. If you can’t afford more than one stock, get involved with a mutual fund or Exchange Traded Funds (ETFs).
When should I start?
For almost all investments, including retirement savings nothing makes up for compound interest and the earlier you start the more your money gets compounded. However, it’s also never too late to start investing, start now, start today.
What’s the risk?
Investing is always risky as no one can accurately predict the future of the stock market. Professionals can make educated estimates as to where the markets will go but there is never 100% certainty.
Do I need a financial planner?
Yes. In order to accurately plan for your finances you need to get in touch with a CERTIFIED FINANCIAL PLANNER® professional / CFP® professional, who should understand your goals and give you various options as to how you can achieve them. They could further help you clearly understand the risks of each investment before you commit.
Will I be charged?
Investing isn’t free. If you’re getting professional help you will have to pay them either a percentage of your portfolio or a flat-fee. Robo-advisors, mutual funds and ETFs also charge fees. Do your research beforehand in order to minimise your fees.
Will I have to pay taxes?
Once you start making money off your investments you will have to pay Capital Gains Tax. However, you may receive a tax break if you’re investing in retirement accounts.
How do I limit my exposure to nasty surprises?
You should put a small portion of your money into risky investments and a much larger portion into very safe investments. A treasury investment is ideal for this and will protect you if the market does something unexpected.
Once you have answered all of these questions for yourself, you should be prepared to start your investment journey.
To find a CERTIFIED FINANCIAL PLANNER® professional in your area and for more tips on financial planning, visit www.fpi.co.za or call 086 1000 FPI (374). You can also join the Institute’s online community on Facebook (Financial Planning Institute of Southern Africa) and on Twitter (@FPI_SANews).