For someone who has never been exposed to the world of investments, deciding to enter this space can be daunting.
However, in order to get started as an investor, the first step is to acquire as much information as possible, according to Carin Mayer, head of FNB Share Investing.
“The first step is to move away from the misconception that investing is for wealthy people – anyone who has the will can start investing, it does not require large amounts of money. Some banks and asset management companies offer investment products for as little as R300 a month. What’s important is to read up on the various investment products in the market place and seek advice where necessary,” said Mayer.
“A first time investor without much knowledge one can easily fall for a product that does not meet their goals or is unsuitable for their life stage.”
Before making a decision to invest, it’s important to consider the following, in her view:
How much can you afford to investment
Once the decision to invest has been made it’s important to make an overall assessment of your expenses to determine how much will be available to invest. This process must be undertaken diligently and must consider your debts and monthly costs such as groceries, insurance bills, groceries and transport.
After determining monthly living expenses it should be clear how much can be set aside for investments. Even if the amount is small, it will make a difference in the long-term.
Decide what you want to accomplish from investing
Know what you aim to achieve when investing, this will also determine the type of investment product that one can go into based on individual risk profile. Emergency cash should not be invested in products for long term investments.
Investing in a single share can present substantially more risk than investing in diversified basket of shares.
Set time frames and stick to them
The standing rule for investments is that one should be in it for the long-term, 5 years or more, and in order to get the best out of your investment it’s better to set a long-term horizon.
If you decide to invest for a period of ten years for example, stay the course and never be deterred by market movements that may result in losses in the short term.
Investing comes with risk
There are risks attached to investing, this largely depends on the type of asset class one chooses, for example shares are more volatile than cash investments.
It all depends on what the investor aims to achieve, but it’s important to understand that some types of investments can be risky, but this does not mean they should be avoided because the market goes through ups and downs hence gains can only be made when you are in it for the long-term.
It is never too early to start investing in shares. History has shown that the markets always recover and move upward. The sooner one creates the good habit of regular investing the sooner one starts participating in market growth.