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There’s so much going on in local and international politics and economics. What does this mean for your investment strategy?
It’s not easy to know where to invest your hard-earned money, especially in tough times. That’s why we called in the experts! Eugene Maree, director at Wealthport, says there are five things we must consider when we invest in tough economic times. Follow these and you’re well on your way to becoming a better investor and achieving your financial goals.
1. Get good independent adviceThink of this as you would repairing your car. Unless you are a mechanic it’s better to get an expert in, especially when you need a major repair.
Having an investment expert on your side boosts your investing confidence, and you can earn higher returns.
Investors who receive financial advice achieve a 3.5% higher return each year.
“An annual study, known as the Dalbar study, found that investors who received advice achieved a 3.5% higher return each year compared to those who invested without advice,” says Eugene.
Eugene’s top tip: Scroll to the end of this article and read the five questions you should ask a financial advisor before investing with him or her.
2. Stick to the plan you and your advisor set out Just as a good budget is the one you stick to, so is a good investment plan.
Spend some time setting your financial goals and drawing up a financial plan that will help you reach these goals. When you’re happy with your plan, follow it.
“Don’t let panic derail you into making dramatic short-term decisions that will have a negative impact on your long-term plan,” says Eugene.
If something is really bothering you discuss it with your advisor before you make any changes.
3. Diversify your investments Putting all your money into one investment is very risky. If something goes wrong with that investment all your funds are affected. It’s like a bad apple. One bad apple in one basket of apples can turn the whole basket of apples bad very quickly. Apples, oranges and bananas in different baskets give you more options. If one goes bad, you’ve got a few more you can use.
When your investment is diversified, if one company performs badly, only a small portion of your investment portfolio is affected.
Eugene says investors must diversify across different asset classes, such as equities, property, bonds and cash, and across geographies. Think about investing in countries and regions other than South Africa - developed markets like the US or Europe, and some emerging markets such as South America or South East Asia.
Discuss with your advisor whether your investments are sufficiently diversified.
4. Ignore the noise Reading a new headline every day and worrying about it? Don’t let it change your investment plan. “The press is there to sell papers so be mindful of sensationalism,” Eugene says. “Remember investment markets are forward looking so when everyone is negative it’s likely this is already reflected in the market.”
Eugene’s top tip: Ask yourself, is all the negativity justified, and what is the likelihood of more negative news? What impact could it have on my investments? And remember, the greatest investment opportunities exist in times of greatest pessimism.
5. Watch the fees - they are critical Don’t pay too much for your investment – it means you’ll get a lower return. Discuss the fees before you invest with your advisor and know what impact they can have on returns. “Total fees, including advice fees, should never be above 2% per annum,” says Eugene.
What should you ask your financial advisor before investing? Eugene says there are five questions you must ask to find out if your advisor’s advice will be objective and independent and if their fees are reasonable.
- Are you an independent financial advisor selling different company’s products?
- What are your fees?
- What are your qualifications and experience?
- What is your investment process?
- What technology do you have to assist me as a client?
