How in­tel­li­gent in­vest­ing builds wealth

Lesotho Times - - Property -

RE­GARD­LESS of the as­set class you choose to in­vest in, ex­perts and an­a­lysts will al­ways point out that one of the most im­por­tant fun­da­men­tals of in­vest­ment suc­cess is a longterm in­vest­ment hori­zon. There are many valid rea­sons why a long-term per­spec­tive al­lows for in­tel­li­gent in­vest­ing.

This is ac­cord­ing to Dr Koos du Toit, CEO of P3 In­vest­ment Group, who says firstly, a long-term per­spec­tive cul­ti­vates dis­ci­pline and the abil­ity to de­lay short-term grat­i­fi­ca­tion in favour of achiev­ing more im­por­tant long-term ob­jec­tives.

Dr du Toit says, for ex­am­ple, a long-term per­spec­tive makes it far eas­ier to save for fu­ture goals and large pur­chases, while avoid­ing un­nec­es­sary spend­ing on con­sum­ables and gad­gets that do not in­crease in value over time.

“In par­tic­u­lar, a long-term per­spec­tive dis­cour­ages the use of ex­pen­sive, short-term debt like credit cards, store ac­counts and per­sonal loans to fund pur­chases, which has trapped many South Africans in a spi­ral of debt that leaves lit­tle spare cash to in­vest.”

Dr du Toit says this doesn’t mean that in­vestors never use debt. With a solid, longterm per­spec­tive, in­vestors can use debt in­tel­li­gently to achieve their long-term goals.

This in­volves longer-term debt that is avail­able at much lower in­ter­est rates, like a home loan, which al­lows in­vestors to ac­quire as­sets such as prop­erty, ed­u­ca­tion or col­lectibles that in­crease in value over time and raise their in­come-earn­ing abil­ity in the fu­ture.

In in­vest­ment cir­cles, he says the in­tel- ligent use of debt to build wealth is called ‘gear­ing’ or ‘lever­ag­ing’.

A long-term per­spec­tive fur­ther en­sures that in­vestors do not re­act to short-term volatil­ity in the mar­kets. Dr du Toit says one of the great­est in­vest­ment pit­falls most in­vestors face is their own hu­man na­ture which, in fi­nan­cial cir­cles is known as ‘in­vestor risk’.

It refers to the fact that in­vestors are of­ten swayed by emo­tion, rang­ing from wild op­ti­mism to sheer panic, which re­sults in buy­ing high, sell­ing low, get­ting the tim­ing wrong or aban­don­ing long-term in­vest­ment strate­gies in re­sponse to short-term mar­ket fluc­tu­a­tions.

The re­sult of this type of emo­tional in­vest­ment de­ci­sion-mak­ing is that in­vestors of­ten sell at a loss and then miss the re­cov­ery, which would have seen them re­coup their losses.

Dr du Toit says many in­vest­ment ad­vi­sors and ex­perts warn in­vestors not to over­re­act to short-term volatil­ity and to stick to their long-term plans, be­cause over the long term, the short-term volatil­ity is smoothed out and the long-term trends be­gin to yield re­sults.

“So, in­stead of bas­ing their in­vest­ment de­ci­sions on short-term events that af­fect the mar­kets daily, in­tel­li­gent in­vestors heed this sage ad­vice and stick to their long-term in­vest­ment plans based on the real long-term trends over a 10 or 20 year pe­riod,” he says.

A long-term per­spec­tive will also in­flu­ence an in­vestor’s as­set choices. Many so-called ex­perts ad­vise against prop­erty in­vest­ment, based on the fact that prop­erty is an illiq- uid as­set that can­not be con­verted into cash quickly, as is pos­si­ble with, for ex­am­ple, shares or short-term fixed d de­posits.

How­ever, in­vestors withth a long-term per­spec­tive do not con­sider the he illiq­uid na­ture of prop­erty as­sets as a draw­back.wback. In fact, they con­sider it a sig­nif­i­cant ben­e­fit, pro­tect­ing them against ‘in­vestor risk’ isk’ and poor de­ci­sion-mak­ing based on short-term hort-term volatil­ity.

Fur­ther­more, Dr du Toit says in­tel­li­gent in­vestors un­der­stand der­stand that while the growth inn prop­erty val­ues may well fluc­tu­ate uc­tu­ate over the short term, a well-mainl-main­tained prop­erty in a well-se­lect­ed­s­e­lected area will al­ways in­crease in value over the long term.

In fact, he says over thehe last 20 years, the av­er­age price of a house has dou­bled, bu­tut only those who in­vested in prop­erty rop­erty with a long-term per­spec­tive spec­tive would have ben­e­fited from this in­crease in value.

“In our ex­pe­ri­ence, a di­rect in­vest­ment in prop­er­tyty is un­doubt­edly one of thehe best in­vest­ments thosee with a long-term per­spec- tive can make,” he says. — Prop­erty24

A WELL-MAIN­TAINED prop­erty in a well-se­lected area will al­ways in­crease in value over the long term.

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