)

MONEY TALK

South Africa's best financial advice, research, how-to's, and insights

Reach Financial Freedom Through Investments

Watering a money tree to help your investment grow

“If you don’t find a way to make money while you sleep, you will work till you die.” The Wolf of Wallstreet, Warren Buffet, said that. He was talking about investing.

The idea is to have money work for you so that you have more time doing what you love most. Most people work only to earn an income so that they can get through the month and pay off their debt. If you’re comfortable with that, good for you. But if you’re not, you need to start making small changes.

Imagine that you had no debt and a source of income rolling in from only investments. You could live off your investments while doing what you love and earning an income. You would be living a life where you get to decide what to do with your day. Be an artist, writer or a traveller. Whatever it is, it’s up to you. There’s nothing holding you back from making your own decisions. That’s freedom.

Being new to the investing world can be scary. Of course, it is. You’re spending your hard-earned money on something that could potentially be in your favour or not. That’s just how the game works. The truth is, that’s there’s nothing to be afraid of. All it takes is a bit of know-how and to simply get started.

Before we jump into this, it is important that you know; investing is not only for the rich folk. Anyone can start investing, no matter how much money you have. You don’t need a lot to start with and there are no investing secrets that you need to know of. All you need to do is start. That’s it. Just start with whatever you can afford right now.

 

Why start investing?

Like many things in life, the sooner you start the better. The investing game is especially kind to those who start young. The longer you let your investment grow the more you’ll end up with at the end of the day.

The purpose of investing is to secure a financial future for yourself. Although the market has its ups and downs, your money will do its thing for decades. You will have the opportunity to double your money over time. Helping you get one step closer to your financial goals.

Investing is not about becoming a millionaire. It’s about being financially independent. In other words, financial freedom. It is about supporting yourself without a credit card or the need for a big salary.

We are all going to have to retire someday. The question is, are you going to be forced to retire? Or, are you going to have the option to retire when you want to?

The choice is up to you. All you need is to know how to play the game.

A lot of people don’t start investing because they fear they’ll make mistakes and lose money. In reality, investments will always have its ups and downs. And your returns don’t really matter in the first decade of investing. What matters is how you save during those years.

Evaluating your returns every year will not only keep you updated on your investments, but you can also start saving those returns. To ensure that you always keep increasing your wealth, start saving those investment returns. Your profits will be secured for the future. Find out which bank will offer you the best interest rate for a fixed deposit savings account and push those investment returns to a secure account annually.

Just knowing how to save your returns already takes the pressure off from investing. You don’t have to make “the right” investment choices, because there is no “right” investment. All you have to do is to save some of the money you’ve made from your investments.

So, don’t let your fear keep you from earning an additional income. Simply getting started is much more important if you’re just starting out.

 

What to invest in?

Before you make any commitments towards any investments, you will have to define your investment goals. There are questions that you’ll have to answer for yourself beforehand. How many years do you need to save to reach your goal? How much do you need by then? How much can you put away each month right now?

Knowing why you’re investing will help you define what type of investment will work best for you.

There are different types of investments that you can choose from. It’s up to you to decide which investment feels right to you and how much risk you can handle. Some investments like an ETF’s have less risk but still, have a great return. And other investments like Equities are riskier, but they might earn you more.

There are a lot of investment structures that you could choose from. Here is a breakdown of the popular ones.

Stocks/shares

These are probably the most common type of investment. When you buy stocks, you buy a part of a company. That means the company shares its profits with you.

Which means that, as the company grows over the years you’ll be earning more as well. These investments could be very valuable, but they do come with high risk.

Bonds

When you’re investing in bonds, you’re providing companies or government entities with a loan. The loan should be paid back within the agreed upon timeframe. And in the meantime, you’re earning interest.

Now that’s a pretty good deal.

Exchange-trade fund (ETFs)

ETFs are made up of a cluster of securities, which consists of stocks, bonds, commodities or some combination of these. There are different types of ETFs to choose from with different risk levels, which would impact your returns differently.

Index funds are common ETF investments. This is a great place for you to start your investment journey.

 

Choosing the right investment

Choosing the right investment depends on your savings goals. You can have multiple investments with different savings goals. You could have one for retirement, a down payment on a house or maybe you’re planning a holiday. The choices are endless and it’s all up to you. So get creative and don’t be afraid to think big.

It’s no secret that the stock market can be unpredictable. With a lot of variables and factors having an impact on the market, it’s difficult to predict what will happen. But the unpredictability factor might be in your favour. You could earn bigger returns from the stock market if the odds are in your favour. For the investor who doesn’t mind the research and the high risk that comes with the investment, investing in shares could have great returns.

Investing in shares might not be for everyone, especially when you’re just starting out. Luckily for us, there are other investments to choose from. Investments like the JSE Top 40 Index is less risky, and it does everything for you. All you have to do is keep adding to the investment and watch it grow.

ETFs are known for their low risk and good returns. Making it the perfect investment to get you started, no matter your savings goals.

 

How much to invest?

Now that we know a bit more about what investing is and what’s we’re investing in, we need to know how much to invest. Like everything in finance, how much you invest is up to you. There’s no magic number that will give you the best returns. Knowing how much you should invest all depends on your budget.

Have a look at your budget in detail and try to cut back where you can. You want to start investing once you can comfortably get through the month and have a sufficient savings fund. If you have these things in place, you’re in a prime position to start investing.

You might not have these things in place just yet, and that’s okay too. This just means that you have a short-term financial goal on your hands. Make your goal to have everything in place by a specific date. Stick to your plan and you’ll be investing in no time.

Once you have everything in place and you’re ready to start investing start looking at those ETFs. These investments generally don’t require a minimum deposit and their returns are great. Which means you can start investing as soon as possible.

 

Some perspective

There’s no doubt that investing is scary. We’re spending our money on things we predict will earn us more in the future, and the future is unpredictable. Making it a stressful endeavour.

To ease the fear factor when it comes to investing, it is critical to research your investments as carefully as possible. When you’re just starting out, it’s a good idea to start small and safe.

Remember ETFs, retirement funds and savings accounts are your friends, these are good for anyone when it comes to investing and saving for your future freedom.

Only invest as much as you can afford, and always keep buying more investments. The longer you keep your investments for, the more they’ll be worth when you need them most.

“Know what you own, and know why you own it.” – Peter Lynch

It is important that you create a stable financial future for yourself. No one else can provide that for you, it’s up to you. Subscribe to our newsletter for money management advice and reach financial freedom before you retire.

Need immediate financial help?

Thank you!

We look forward to the opportunity to get you debt-free!