Investing appropriately is a crucial step towards securing your financial future, but it can be daunting.
Nowadays, so much information is available on the internet and social media. Our friends, neighbours, social media influencers, and family members seem to have lots of ideas about how we should invest.
It’s easy to get overwhelmed and confused. However, you must remember that there are potential pitfalls and dangers to following the latest trends instead of creating your own strategy that is suitable for your needs.
Imagine you’re taking a road trip from Johannesburg to Cape Town, and at every pitstop you make, someone recommends that you change course and go in a different direction or visit a different place instead because that’s where they are going, and it’s better. You might never get to Cape Town.
So, how should you go about this?
Start with what’s important to you. Before you invest, it’s important to understand what you want and your financial goals.
Before you go on the trip, you have to decide which route you’d like to take, plan how many pitstops you’d like to make, and the activities you will do when you get to Cape Town, etc. Similarly, with an investment strategy, you must decide what your goal for the investment is and create a suitable plan.
Goals can vary based on age, income, expenses, and lifestyle. For example, if you’re in your 20s, your financial goals and priorities might include saving for a deposit for a house, paying off student loans, and building an emergency fund.
On the other hand, if you’re in your 30s, your priorities might include saving for retirement, paying off your mortgage, and funding your children’s education.
Once you’ve identified your financial goals, you can create a plan to achieve them. This plan should include a budget, a savings strategy, and an investment plan. Your investment plan should be tailored to your financial goals, risk tolerance, and time horizon.
Can you see the danger of mindlessly following the strategy that was discussed at the braai last weekend?
Your circumstances and objectives may not be the same as your neighbours. Therefore, it’s a risk to mindlessly follow every piece of investment advice you get from everyone.
Research shows that investors typically get less returns than the market delivers. This is primarily caused by the wrong behaviour, switching in and out of investments. I bet a big part of this is influenced by following the noise and the crowd.
Having a plan will give you structure and help you stay focused. Here are some basic elements that should be in your plan:
Your financial goals: The first step is to identify your financial goals. This will help you determine your investment time horizon and objective, which can be growth, income, or capital preservation.
Diversification: Diversification is key to reducing risk and maximising returns. This means spreading your investments across different asset classes, sectors, and geographic regions.
Review your plan: Once you’ve created your investment plan, you can review it at least once a year. This will help you stay on track and ensure that your investments align with your goals.
In conclusion, to be a successful investor, you must have a plan and stick to it.
Remember that you are driving to Cape Town and not Durban or Namibia. It’s okay if someone else is going in a different direction; they are on their own journey.
There will be noise and hick-ups along the way. If your plan is set up correctly, the right thing to do is often nothing and stay the course. Happy Investing! — Moneyweb
