7 Investment Questions You need Answered before you begin your Investment journey. According to many financial analysts and experts, as a nation, South Africans are not very good savers, especially when compared to their peers from around the world. But most of them also admit that that is beginning to change, as more and more of us begin to better understand the importance of saving in general and of saving for retirement in particular.
The traditional method of saving that many consumers are at least vaguely familiar with is the simple act of putting money in the bank, in an interest bearing savings account. That is certainly one way of doing things and in no way could ever be described as a bad idea, as saving money is always going to be better than not doing so.
But is it the best way to make use of the money you have to save, or the best way to ‘build wealth’, a goal that many people vaguely know that they should be striving for? Usually, the answer is no.
Investing your savings money in a more aggressive manner is a far better way to build wealth but it is not without its risks. And any investment does pose a risk. Which is why, even if you are working with a financial adviser – which is a good idea for any novice investor – you personally need to understand certain things about a potential investment before you part with a single Rand. In other words, before you choose an investment, you need to understand how it really works and the risks involved. You can begin to do so by asking yourself – and your financial adviser – the following seven questions;
- How Does the Investment Work? – The term investment is, of course, a very loose one and every opportunity will work – or not – in a different way. Having a financial adviser that understands it all is great but you should too, and understand it well enough that you could explain it to someone else.
- What are Your Goals for This Investment? – You need to make clear in your own mind just why you are considering this investment, what you hope it will do for you. Are you hoping to grow the money invested over time? Do you want to be able to draw an income from it quickly? Or are you hoping to achieve a combination of both?
- What are the Risks of This Investment? – As we mentioned previously, no investment comes without a certain level of risk, but some are obviously riskier than others. You should determine just what the risks are as well as how comfortable you with the possible downside risks associated with the investment.
- How Long Do You Plan to Stick With This Investment? – There are three basic types of investment in terms of length; short, medium and long-term. Which one describes this opportunity and does that time frame align with your goals?
- How Much Do You Expect to Earn? – Sometimes novice investors go into an investment without a realistic idea of its earning potential and are therefore disappointed – and out of pocket – when it does not perform in the way they had expected it to. Get a realistic estimate of the earning potential of the investment you are considering and then decide if that is in line with what you ‘need.’
- What Are the Real Costs Involved to Buy, Hold and Sell This Investment? – An investment is not a grocery store purchase. There is more to an investment than the initially stated Rand value to buy in. There may be administrative fees. You may have to pay taxes on the money you earn. These are ‘extras’ you need to be clear on before you invest.
- What Other Investments Do You Already Hold and How Does This One Fit with Them? – Any sensible investor maintains what is known as an asset mix. You should never put all of your eggs in the same basket.
This last question really is probably one that you should discuss at length with a financial adviser as the last thing you want is to take on something that might put your established assets – assets like your home – at an unreasonable risk.
Hopefully the above has gone some way in answering the 7 Investment Questions You need Answered. The next step is to call us and speak to a Professional Investment Consultant before placing your funds.