7 DEADLY SINS OF PER­SONAL FI­NANCE

Mak­ing bad in­vest­ment choices

Finweek English Edition - - MONEY - BY SUNEL VELDTMAN, CEO of Foun­da­tion Fam­ily Wealth

THIS WEEK, WE LOOK AT MAK­ING IN­VEST­MENT DE­CI­SIONS FOR THE WRONG REA­SONS

1. In­vest­ing with the Joneses

Just be­cause your golf buddy achieved great suc­cess with a par­tic­u­lar in­vest­ment does not mean that it is the right in­vest­ment choice for you.

Fi­nan­cial plan­ning has be­come in­creas­ingly more com­pli­cated as peo­ple have

more choices. Not only are ca­reers more f l exi bl e and un­cer­tain, but many peo­ple find them­selves with obli­ga­tions they never con­sid­ered.

Ed­u­ca­tion has be­come more ex­pen­sive, chil­dren stay at home longer and find it more dif­fi­cult to get j obs, par­ents run out of money, live longer, and may need sup­port.

Not ev­ery­one’s dreams are the same. The re­tire­ment home by the sea may not ap­peal to ev­ery­one. Some may want to travel and taste ad­ven­ture, while oth­ers may have dreams of a sec­ond ca­reer.

Your in­vest­ment de­ci­sions should be based on your pers onal f i nan­cial pl an. Your fi­nan­cial plan should fo­cus on your ci r cumstances – your sav­ings, your fu­ture obli­ga­tions your dreams and val­ues.

2. In­vest­ing for tax rea­sons

To­wards the end of t he t ax year, we of­ten get ques­tions about po­ten­tial tax- sav­ing in­vest­ments. Many tax ad­vis­ers will en­cour­age their clients to buy re­tire

ment an­nu­ities at this time. Al­though re­tire­ment an­nu­ities are great ve­hi­cles for sav­ing for re­tire­ment, they are not nec­es­sar­ily ap­pro­pri­ate f or ev­ery­one.

There are other ve­hi­cles such as en­dow­ments and struc­tured prod­ucts, which also have t ax ben­e­fits, but which are not suit­able to many in­vestors.

First, it only ap­plies to in­vestors with high tax rates. Young peo­ple who are j ust start­ing out sel­dom have need for tax shel­ters but some­times are trapped into these ve­hi­cles.

Tax ben­e­fits nor­mally point to re­stric­tions i n ac­cess­ing your cap­i­tal . Ty­ing up too much of your cap­i­tal can be dan­ger­ous. Liq­uid­ity i s an im­por­tant con­sid­er­a­tion.

Tax struc­tures are of ten com­pli­cated and opaque, hidi ng costs and ob­scur­ing the true un­der­ly­ing in­vest­ment risk and source of re­turn. In­vest­ing to min­imise tax can be harm­ful . If that i s your pri­mary at­trac­tion of the in­vest­ment, be care­ful.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.