Are you just sav­ing or build­ing wealth?

Sunday World - - Jobs -

Re­cently I had meet­ings with po­ten­tial clients where we were dis­cussing the dif­fer­ence be­tween sav­ings and in­vest­ments. In all my meet­ings there was a com­mon un­der­stand­ing among clients that be­cause they are putting money away they are “in­vest­ing”.

This could be the same un­der­stand­ing­for­most peo­ple. Sav­ings is the por­tion of cur­rent in­come not spent on con­sump­tion. It can be slow and steady com­pared to in­vest­ing, which is the pur­chase of as­sets with the goal of in­creas­ing fu­ture in­come.

Like one stu­dent said: “In­vest­ing is like an ocean, some­times you catch good waves, oth­er­times theyjust roll out”; you must find a way out.

Many peo­ple have lump sums of money in a bank/sav­ings ac­count that is ac­cu­mu­lat­ing min­i­mal in­ter­est in­stead on plac­ing these lump sums in an in­vest­ment plat­form. This plat­formwill give an op­por­tu­nity to get high re­turns which come with great risk, which is why you will need a well-di­ver­si­fied port­fo­lio which will help spread your risk.

There are pros and cons on both sav­ings and in­vest­ments.

give you easy ac­cess at any given time which can be a challenge for peo­ple who are not dis­ci­plined as they might keep ac­cess­ing it for un­nec­es­sary things. There are no fluc­tu­a­tions of the mar­ket and low risk, which means your­cap­i­tal is secured. Sav­ings are for a rainy day; do you have at least three to six months’ salary in­y­our sav­ingsac­count? We can­not ex­pect to build wealth by just putting money away in a sav­ings ac­count, that is why there are in­vest­ments plat­forms that will help grow your wealth.

are sub­ject to mar­ket volatil­ity which may af­fect the value of in­vest­ment and have high risk with high re­turn.

It can be for short, medium and long term.

You need to know and un­der­stand the types of in­vest­ments which are called as­set classes: eq­ui­ties (shares), bonds (fixed in­come), prop­erty and cash equiv­a­lents (cash in hand or money mar­kets); these can be com­bined in build­ing a bal­anced port­fo­lio. Then you ask your­self: “What can I in­vest in?’’ The an­swer to that is, it will de­pend on your risk ap­petite and your goal. Con­tact an in­vest­ment ex­pert or a fi­nan­cial ad­viser to help you di­ver­sify your port­fo­lio.

One of the most com­mon mis­takes that peo­ple make is thatthey lookat­past per­for­mance and make a de­ci­sion base­don that, which is in­cor­rect. You need to un­der­stand the ob­jec­tive of the fund you are in­vest­ing in and your risk pro­file and make sure it is in line with your goals.

Re­mem­ber when the first wave hits you (first hint of loss) do not rush to get out of the ocean, be pa­tient, stick it out and you will en­joy the out­comes.

Zaba is the owner of Tokoloho Fi­nan­cial Ser­vices, an in­sur­ance bro­ker­age. She is also the co-au­thor of Save In­vest Pros per and is an ex­ec­u­tive mem­ber of the Fi­nan­cial Ser­vices In­ter­me­di­aries Net­work, work­ing on a pol­icy within the in­sur­ance in­dus­try.

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