Growth & Jobs | Assess your finances before you invest long-term – JN Fund Managers
AINSLEY WHYTE, head of sales and financial advice at JN Fund Managers, recommends that before one invests for the long haul, one does an assessment of one’s finances to know how much money is available to invest.
“It wouldn’t be prudent to put money in an investment portfolio until you have gone through a comprehensive financial planning process,” he advised.
Whyte made the recommendation within the context of Financial Literacy Month being observed in April.
He suggests that one should commence by looking at their assets and debts and setting up a reasonable debt-management plan and understanding how much they will need to put in place for an emergency fund.
“By undertaking these financial tasks first, this will ensure that you’ll be able to put funds into long-term investments and not need to pull money out again for a while,” he said.
Whyte cautioned that withdrawing funds early from long-term investments jeopardises one’s goals and poses other financial challenges such as tax implications.
He recommends the following strategies:
KNOW YOUR TIMELINE
Everyone has different investment goals such as retirement, paying for your children’s university education, and purchasing a home.
“No matter what the goal, the key to all long-term investing is understanding your timeline or how many years before you need the money. Typically, long-term investing means five years or more, but there’s no firm definition. By understanding when you need the funds you’re investing, you will have a better sense of appropriate investments to choose and how much risk you should take on,” he said.
PICK A STRATEGY AND STICK WITH IT
He noted that once you’ve established your investment goals and timelines, one should choose an investment strategy and stick with it. It may even be helpful to break the overall timeline into segments to guide the choice of asset allocation.
Whyte stated that based on the target date of goals, one can categorise them based on the target dates. For example, one could have a five to 15-year goal;, a 15 to 30-year plan, or one that is more than 30 years, especially in the case of younger investors.
FAMILIARISE YOURSELF WITH INVESTMENT RISKS
He warned that to avoid knee-jerk reactions to market volatility, one must be sure to know the risks inherent in investing in different assets before buying them.
“Consulting with your financial adviser can assist you in this process,” he said.
Stocks, he said, are riskier investments than bonds, for instance, and he recommends trimming stock allocations as one approaches one’s goal. This way, he said, you can lock in some of your gains as you reach your deadline.
DIVERSIFY FOR SUCCESSFUL INVESTMENT
The JN Fund manager adviser says that spreading one’s portfolio across a variety of assets allows one to hedge one’s bets and boost the odds that one is holding a “winner” at any given time over a longer investment timeframe.
“Your asset allocation can start with a mix of stocks and bonds, but diversifying drills deeper than that, within the stock portion of your portfolio,” said Whyte.
DIVERSIFICATION VIA MUTUAL FUNDS
He explained that to improve diversification, one may choose to invest in funds instead of individual stocks and bonds. He said that mutual funds provide the advantage to easily build a well-diversified portfolio with exposure to hundreds or thousands of individual stocks and bonds.
“We encourage you to speak with your financial adviser, who can give further information on this,” said Whyte.