Many people are venturing into the world of investing in a bid to make extra cash during these tough economic times. According to the Financial Planning Institute (FPI), 76% of South Africans are interested in making sure their investments are profitable.
Sydney Sekese, a certified financial planner, noted ten questions that you should ask before making an investment:
- Am I financially fit?
If you have a lot of debt, it doesn’t make sense to invest money. Rather focus on paying off your debt and re-investing your money. According to Sekese, this will ensure that you are working towards a goal and not a shortfall in your investment.
- What will I do with the money?
When you are investing, you need to decide what you will do with the money you make from the investment. Your goal will influence the type of investment that you will choose, and how soon you want access to your money.
- Do I know my options?
If you are investing for the first time, Sekese pointed out that it is important to note that you will make more money investing in a good mutual fund rather than moving between stocks. “Riskier investments are better for those with a deep understanding of investments and the markets.”
- Where is the best place to invest?
When it comes to investing, it is important to diversify your portfolio to protect yourself if one market performs poorly. “If you can’t afford more than one stock, get involved with a mutual fund or Exchange Traded Funds (ETFs),” advised Sekese.
- When should I start?
Regardless of the investment type, including retirement saving, time is a valuable asset. Sekese highlighted that nothing makes up for compound interest and the earlier you start saving and investing the more your money gets compounded.
In simple terms, compound interest means that you earn interest on the previous interest paid to you. Some accounts only earn simply interest, where you only earn interest on the amount you invested or saved.
While time is a good asset when investing, Sekese noted that it is never too late to start investing.
- What’s the risk?
There is always a risk when it comes to investments. It is important to note that no one can accurately predict the future of the stock market. Past performance by any fund is no indication as to how it will perform in the future. As Sekese pointed out: “Professionals can make educated estimates as to where the markets will go but there is never 100% certainty.”
- Do I need a financial planner?
You should have a financial planner when considering investments. To accurately plan for your finances, you need to contact a certified financial planner. They can take into consideration your goals and give you various investment options to help you achieve those goals. In addition, a financial planner can help you understand the risks of each investment before you commit to them.
- Will I be charged?
There are fees associated with investing. Sekese said: “If you’re getting professional help you will have to pay them either a percentage of your portfolio or a flat-fee. Robo-advisors, mutual funds and ETFs also charge fees. Do your research beforehand in order to minimise your fees.”
- Will I have to pay taxes?
When your investment starts to earn money, you will be required to pay Capital Gains Tax. However, if you are investing in retirement accounts, you may be eligible to receive a tax break.
- How do I limit my exposure to nasty surprises?
When it comes to making your investments, to avoid any ‘nasty surprises’ Sekese suggested placing a small portion of your money into risky investments and a larger portion into safe investments. “A treasury investment is ideal for this and will protect you if the market does something unexpected,” said Sekese.
Handy tip: You can start small with your investments by opening a unit trust. You can apply for a unit trust on Justmoney.