Making the best return on investments is the Holy Grail of investors everywhere; advice comes thick and fast from all directions as to how to invest, where to and where not to invest and who to trust those investments with. The fact is that no one can say with complete certainty where is best to invest – but there are some basic principles that can serve to make your decision a well-informed one.
In view of South Africa’s inflation rate running at over 6% in recent times – a figure outstripping savings rates – simply keeping your Rand in cash savings might not be the best course of action. It’s certainly not worth considering whether some of those savings could be channelled into potentially higher performing investments if immediate access to those funds isn’t required.
Your investment goals
Establishing what you’re investing for will help inform the type of investment vehicles you use. For example, if your main goals are long term – such as saving for your child’s wedding, helping them with their first house purchase or buying yourself a second home – then investments designed for the longer term such as stocks, shares and bonds would make sense.
If your goal is shorter term – replacing the car or taking a dream holiday such as a long cruise – then stocks and shares might not be appropriate.
A sound principle to follow; rather than having all your investments in one area it’s best to vary them. For example, rather than just buying bonds it’s worth considering investing in stocks and shares whether with the help of experts such as IG or through a unit trust where you don’t have to select the actual stocks just the general risk type.
It’s worth diversifying within actual investment categories. For example, even if you have a stocks and shares portfolio ideally they could consist of a mix of different types – perhaps some ‘household name’ types such as Coca Cola or Apple – and others of newer and less proven companies but with the potential to perform well.
The key advantage of diversifying is that it spreads risk; for example, if one type of business category loses value on the stock market the chances are values in other categories in your portfolio could rise to compensate. It’s the ‘not keeping all your eggs in one basket’ principle at work.
Keep to your plan
Having established an investment plan, it’s important to stick to it rather than risk being blown off course by a ‘hot tip’ from a friend or colleague or headline news. You might think of channeling more of your investment efforts and funds into an area of high performing stocks, but you could run the risk of buying high and possibly selling low – the opposite to the basic principle of trading in stocks and shares.
Overall, consistency is the guiding principle here.
Don’t follow the herd (but be careful)
It might seem to contradict the above, but be alive to the possibilities of going against the market on occasions. Hugely successful American investor Warren Buffet has often done this to considerable effect. It’s not easy but, if you are armed with some knowledge of industry sectors, and perhaps when you feel more experienced, some of your investing could be ‘against the grain’. If you have expertise in a sector, this could be an option for you.
Keeping on top of your investments
Maintain a watching brief on your investments to ensure you’re Rand is working as hard for you as it should. It could be worth using a qualified and experienced financial advisor to help guide you on your investment journey.