If your savings goal is one year or more than five years away, putting some of your cash into investments could allow you to earn more from your money and keep up with rising prices.
WHAT ARE INVESTMENTS?
Investments are something you can buy or put you money into to get a profitable return.
Most people choose from four main type of investment, known as 'asset classes':
Shares - you buy a stake in a company;
Cash - the savings you put in a bank or building society account.
Property - you invest in a physical building, whether commercial or residential.
Fixed Interest Securities (also called bonds) you losing your money to a company or governments.
There are other types of investments available too including:
Foreign currencies and Cryptocurrencies;
Collectibles, such as art and antiques;
Commodities like Oil, Coffee, Rubber or Gold;
Contracts for difference, where you bet in shares gaining or losing value.
The various assets owned by an investor are called a portfolio. As a general rule, spreading your money between different types of asset classes helps lower the risk of your overall portfolio under-performing.
RETURNS
Returns are the profit you earn from your investments.
Depending on where you put your money, it could be paid in a number of different ways:
Dividends - from shares;
Rent - from properties;
Interest - from cash deposits and Fixed Income Securities;
Capital Gains - the difference between the price you pay and the price you get.
Risks
None of us likes to gamble with our savings, but the truth is there's no such thing as a 'No-Risk' Investment. You're always taking on some risk when you invest but the amount varies between different types of investments:
Money you place in secure deposits such as savings accounts risks losing value in real terms (buying power) over tie, This is because the interest rate paid win't always keep up with rising prices (inflation).
On the other hand, index-linked investments that follow the rate of inflation don't always follow market interest rates. This means that if inflation falls you could earn less in interest than you expected.
Stock market investments might beat inflation and interest rates over time, but you run the risk that prices might be low at the time you need to sell. This can result in a poor return or, if they are lower than when you bought, losing money.
When you start investing, it's usually a good idea to spread your risk by putting your money into a number of different products and classes. that way, if the investment doesn't work out as you hope, you've still got others to all back on. This is called 'diversifying'
Making an Investment Plan
It's easier to find the best home for your savings and investments with a plan. With a plan, you know how much to save and can keep track of progress.
Step 1 - Complete a Money Fact Find
Before you can make a plan, you need to take stock - identify your needs and goals and work out how much you can save. Contact a SUNFund Africa Consultant help on this.
Step 2 - Make Your Investment Plan
Drawing on the information from your Money Fact Find, your investment plan should set out:
Your investment goals and what types of savings and investments might be suitable for achieving them, taking into account your time frames, financial situation, tax position, risk appetite (what level of risk are you prepared to take with your money) and your propensity for loss (how much of you original capital are your prepared to lose).
What kind of returns you need and can reasonably expect (if you're new to investing talking to a qualified financial adviser may be especially helpful).
How much you want to manage in your plan yourself and any adviser fees you're willing to pay;
How often you want to check how your investments are doing and under what circumstances you'll make changes.
Step 3 - Action
Once you've compared what's available it's time to act on your plan.
Having a well-diversified financial portfolio can help mitigate your level of risk.
For more information, Contact Us on +263 71 901 1755 or Visit Us at:
Global Business Innovations (GBI)
336 Herbert Chitepo
Harare
Zimbabwe
(next to Alliance Francaise)
