We all want to retire comfortably, own a comfortable home, and fill it with nice things. And travel. To do these things you need money and, for most of us that means saving and investing. For some, saving money fits easily into our personality type yet, for the rest of us it takes discipline and commitment, especially when times are tough or you’re the “spender” type.
The Importance of Savings
Starting your investment journey early in your working career is the best way to ensure you do not have to play ‘catch up’ with retirement savings later in life. If life and circumstances has left you without an adequate savings plan, then start saving now by putting a little away every month. Stay disciplined and make it your goal to increase these savings annually in line with inflation, and your higher earnings.
Setting up Savings Goals
What are you saving for? Savings can be broken down to short, medium and long term savings plans. Is there something specific you are saving for, like a car or a home? Do you have a list of things that you need to provide for within the next five years?
Short and medium-term planning will include planning for a car, a home, educational savings; if you have children, perhaps even a holiday or a wedding, or paying off a student loan. Longer-term planning consists of retirement planning, setting up a tax-efficient portfolio, paying off debt, and ensuring you have an emergency fund in place.
Structuring your Investments
The greater the risk, the greater the reward. Put another way, the riskier the investment the longer you need to invest for to ensure you enjoy an expected return. Shorter-term goals should be conservatively invested into cash and similar investments. The return is lower, but the risk of capital loss is small or negligible. Medium-term goals should include a mix of low risk and higher risk investments. Long-term goals will provide you with the opportunity to diversify into riskier investments including property and local and offshore equity (shares). These asset classes are more risky in the short term yet, have proven to be excellent inflation beating investments over the long term and are crucial to ensure you have sufficient provision in place for retirement.
Different Investment Products
There are different investment products for different investment needs. Bank savings accounts, money market funds or low risk bond funds are excellent investment vehicles for short term investment goals. Retirement annuities are tax efficient long-term retirement savings investments that are ideal for you to save for retirement if you do not have a company pension or provident fund to contribute to. A tax-free investment may be used short-term or long-term goals e.g. an emergency fund in a tax efficient way.
You may need to do some investigation to find suitable investment products that will help you meet your needs or, get some help from a qualified financial advisor to put your savings plan into place.
Avoid Future Headaches
Get some help from a qualified financial advisor. By doing this from day one you will save time, obtain good advice and have assurance that you are investing in the best products for your current needs. In the ideal world, the longer you can stay with one advisor, to take with you on your personal financial journey – the better!
Choose products from larger, well-known investment companies that have a reputable name in the industry. They have well-structured support teams, sufficiently qualified and experienced advisors, legal and technical teams to support with more complicated queries, and strict compliance regulations. The peace of mind that comes from knowing that your money is invested with accountable institutions is invaluable.
The Benefit of Time
If time is money then stay invested!
Albert Einstein famously said that compound interest is the most powerful force in the universe. He said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.” Properly invested and left to itself over time, compound interest or, interest on interest will cause your investments to grow at an ever-increasing rate into the future.
In life, there are many daily needs competing for your financial attention. Sacrificing some income today by saving and being diligent about it will ensure that you will have the resources to meet the needs of tomorrow.
If you have to, start small. But start now.
Article produced by Karimma Erasmus from Capstone. This is a sponsored article. If you would like to sponsor an article request our rate card: contact RecruitMyMom.
Karimma Erasmus, CFP® Karimma is a Certified Financial Planner with 20 years’ experience in the financial services industry. She specialises in retirement fund consulting to numerous company retirement funds and provides financial planning and investment advisory services to individual, corporate and institutional investors.
Capstone 293 Pty Ltd (Capstone) is a licensed Financial Services Provider, license number, 5712 and has duly authorized representatives that can render advice and intermediary services on these important matters. Please contact us at 011 477 0062 or via e-mail at karimma@cstone.co.za.
