To build wealth with confidence, it is important to understand the foundational steps to investing money wisely, an expert says.
Although it feels like you will never be able to build wealth because the cost of living is so high and you hardly make it to the end of the month, it is possible if you approach it the right way.
In a world where dramatic market swings and economic uncertainty have become the norm, making smart investment decisions has never been more important, Albert Botha, Ashburton’s head of fixed income, says.
That is why financial literacy is so important. Financial literacy is about empowering yourself to know a range of financial terminology and tactics that can help you weigh up your options for better personal financial management.
It is also important to choose a financial literacy news source you can trust and make it a habit to tune in every week or month to learn more about the funds, sectors and trends you need to know about.
Ask questions of people who understand finance, read fund factsheets on investment companies’ websites and do not be afraid to seek professional advice, Botha says. “Do not put all your trust in Google, ChatGPT, forex platforms or cryptocurrencies. Think wider and more long-term.”
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Botha has these five expert-backed investing tips that anyone can apply, whether you are getting started or looking to fine-tune your long-term strategy to build wealth:
#1: Start with a plan and start young
It is easy to get overwhelmed by investment options, but the most important first step is having a clear financial goal and starting as early as you can to support those goals, even if the investment is small initially. Are you saving for retirement, a home, a new venture, or your children’s education? Knowing your ‘why’ helps define your risk tolerance and investment time horizon, Botha says.
“90% of investment success comes from starting early, saving enough and letting the markets work. For most people, at least 25% of their investment portfolios come from money they started investing between the ages of 25 and 30.”
#2: Diversify to manage risk
Never put all your eggs in one basket. A diversified portfolio spreads risk across different asset classes, such as equities, bonds, property and cash, as well as different local and offshore regions. Botha says this helps to cushion you against turmoil and fluctuations in any single market.
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#3: Look beyond South Africa’s borders
Offshore investing offers access to broader opportunities than just the local market, which takes up less than 1% of the total investment universe and can act as a hedge against local currency and market risks.
Botha says this is quite topical now considering that the rand was close to R21.09 to the Euro this week. “Consider balanced exposure to global equities or funds tailored to international markets to help you weather fluctuations that can affect South African investors.”
#4: Consistency beats timing the market
“Live for today, but do not forget to plan for tomorrow. Start small and grow your wealth over time by leveraging the mathematical wonder of compound interest,” Steven Amey, head of intermediated distribution at Ashburton, says.
Trying to ‘buy low, sell high’ rarely works for the average untrained investor. A more effective strategy is to invest regularly, in small amounts and stay the course through market ups and downs.
“This is why our philosophy is that small things, done consistently over time, with great focus and dedication, can create significant results. We stand by that philosophy.”
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#5: Understand what you are investing in
“One of the best financial investments is education, it pays long-term dividends that transcend market movements,” Santhuri Thaver, head of credit at Ashburton, says.
