7 DEADLY SINS OF PERSONAL FINANCE
Making bad investment choices
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.