Wed | Mar 21, 2018

Financial help

Published:Sunday | January 3, 2016 | 12:00 AM

I am a young investor seeking expert advice on the best way to capitalise on some shortterm and long-term investment plans. I have a working knowledge of accounts, but I am not competent as yet in regards to making my money work for me. I would really appreciate all the help I can get.

- Raheme

If you cause your money to earn effectively for you, you could conceivably earn more from your investments than from employment at some point, and thus, really achieve financial independence. I

recommend the following approach:

If you are to have money to invest, you must save. The most effective way to generate savings is to manage your financial affairs by using a budget. As a spending plan, it will help you to keep spending within the limits of your income but should be structured to give savings a position of top priority.

As you generate savings, invest them. Have a proper and realistic investment plan. Structure this plan to reflect your willingness and ability to take risk. Set a time for realising your goals and the main ones especially. For the short-term plans, organise your savings to have funds available to fulfil them. For long-term plans, invest as necessary to have funds available to fulfil them.

Start your savings/investment programme now, thus giving time for your funds to accumulate. The power of compounding is awesome. Do not disturb these funds. Create an emergency fund. It will reduce the need to encroach on your savings and investments when unexpected events occur.

Save and invest regularly and consistently. Although it is ideal to save/invest a set sum or proportion of your salary, if circumstances arise which make it challenging to do so, go ahead with a smaller sum.

Diversify your investments. Spread risk by investing in different types of investment instruments, different currencies, in different sectors of the economy, and in different economies as much as possible.

Invest in instruments that you understand and which are appropriate for you and suit your objectives. If you want income primarily, for example, your focus should be on bonds, not ordinary stock.

Tax-efficient instruments yield far greater returns than taxable instruments. Reinvesting 100 per cent of your investment returns is far superior to reinvesting 75 per cent. Stocks, most unit trusts and interest-earning instruments such as long-term savings accounts are good for this purpose. Some types of life insurance products can also help you to accumulate income in a tax-efficient way.

Manage debt well and thus leave more of your financial resources to grow your wealth. Pay down expensive debt as a matter of priority.

If you discipline yourself not to disturb your savings and investments, they will work for you and you may not even realise the extent to which it is happening. With time, your portfolio will show significant growth, much more than you would expect if you just focused on the relatively slow growth in the early years.

An understanding of accounting, to the extent that it has the tools for doing meaningful financial analysis, can be of great value if you choose to invest in stocks. Use that knowledge and skill to do good research and thus make good investment decisions.

I get a sense that you are expecting me to share trading techniques with you, but I would advise you to invest systematically. This approach will result in investments being made at various prices and with various rates of return. Avoid focusing on when to buy and when to sell.

You do not have to personally manage your money. There are several licensed securities dealers who offer that service for a fee. If you engage them, be clear about the services they offer, how they charge, their responsibilities to you and yours to them, and how and when they will report on your portfolio.

If you take a goal-oriented and focused approach, you should be able to get your money to work for you successfully. You also need to be level-headed and not be easily swayed by what other people are doing. Know what you want and take your time.

n Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email