The first question I often receive from a client is: “Where should I invest my money?” As an adviser, the first question I ask is: “What is the investment for?” That’s because the best investment is the one that best meets your needs.
NEED NO 1: Saving for next year’s school fees or a deposit on a house or car
For shorter-term investments, where the time horizon is six to 12 months, you do not want to risk your capital, as there would not be time to recover any losses. While capital guarantee is very important, over a short period, inflation is less of a concern.
HOW TO MEET IT: You could consider money market funds or a fixed deposit which can guarantee your capital and a reasonable rate of interest. You could also consider low-risk unit trust portfolios, such as the Stanlib Income Fund.
NEED NO 2: Investing in your child’s university education
Hopefully, you start investing in your child’s tertiary education as soon as possible, so that the growth on the investment can assist in combating inflation in education costs. As this investment would be over a longer period, one would consider a portfolio that included growth assets, such as equities, in order to ensure the investment grows at a rate above inflation.
HOW TO MEET IT: The Liberty Excelsior Education Plan allows one to select an underlying portfolio to match your time horizon. I also recommend that parents consider the educator benefit, a benefit that pays for the child’s education from the time of claim until the third year of tertiary education, should the policyholder pass away or become disabled.
NEED NO 3: Saving for life goals
Many of our clients have goals that they wish to achieve over the next 10 years, such as starting their own business or taking a sabbatical. Although these goals are not necessarily aimed at the retirement years, even over a 10-year period, one has to consider an investment that will grow ahead of inflation. At an inflation rate of 6% per annum, your investment would have to grow by 80% over 10 years just to keep its current value.
HOW TO MEET IT: A tax-free savings account provides the perfect opportunity to grow wealth in a tax-efficient manner and still provide flexibility. These accounts are low-cost, tax-efficient investments. You can contribute up to R30 000 per year with a lifetime limit of R500 000 in contributions. Just ensure that the underlying investment is a unit trust or another growth investment.
NEED NO 4: Preparing for the golden years
It is imperative to save towards retirement, as only a handful of South Africans retire comfortably. A retirement annuity plan allows you to augment your pension fund with an employer, especially if you cashed in your retirement fund when changing jobs and are now playing catch up. The beauty of a retirement annuity plan is that our government incentivises us to save towards our retirement by giving us tax rebates for contributing towards such a plan. One of the challenges is that we seldom know what income we will receive in retirement while we are saving.
HOW TO MEET IT: Liberty’s Agile Retirement Range allows clients to guarantee in part the amount they will receive as an income in retirement, while allocating additional retirement funding to higher-risk investment portfolios to take advantage of stock market growth through a choice of over 100 portfolios to suit almost any retirement strategy.
NEED NO 5: Investing in yourself
While financial advisers may focus on the rands and cents, there are other forms of investing that do not only include investment products. Investing in yourself through further education or starting your own business, for example, is an equally important “investment class”.
HOW TO MEET IT: It is important that your financial adviser looks at your plan holistically and finds a balance in meeting all your investment needs.
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