8 golden rules for beginner investors

9 May 2023
4 minute read
Woman leaning on desk with arms folded

There is a lot of investment advice out there, but is it right for you? These golden rules for investing will help you choose the most appropriate investment for you, so you can grow your wealth!

1. Start investing today with what you have

Golden rule number one is about as straightforward as it gets. Invest what you can, as soon as possible, even if that is only R100 a month. Set up a debit order from your bank account to automate savings and prioritise investing over other expenses. Aim to grow your contribution over time, when you have more to spare or are earning more, or perhaps get a windfall such as an inheritance. When you start investing early, your money benefits from compound interest, which means you have more money over time!

2. Skill up and stay informed

Get to know more about the investment world and how investments work by taking a free financial education course from Truth About Money. You should also read blogs and articles, listen to radio programmes and podcasts, and follow social media influencers for advice and tips and to stay up to date with investment news.

3. Always invest to beat inflation

Inflation means prices increase over time, which means your R100 today will buy less in a few years time. However, if you invest your R100 and your return is higher than inflation, you will be able to buy the same items and more in the future! For example, today, the amount you have buys a hamburger, in the future the money you invest buys a hamburger as well as sides and a drink. Look for investments that aim to return more than inflation when you invest. Always!

4. Protect your investments

Capital and returns are not usually guaranteed when you invest, so although your investment can grow in value, it can also fall in value. There are three ways you can work with your financial adviser to protect your money and give yourself the best chance of making money!

Invest in regulated investments

For example, invest in unit trusts managed by an investment company registered with the Financial Services Conduct Authority or shares listed on a recognised stock exchange such as the JSE. Regulated investments have to follow certain rules and take measures to protect your capital, and only in extreme cases will you lose all or large amounts of your capital.

Diversify your investments

Don’t put all your eggs in one basket. Diversifying your investments means you have different investments in different companies, industries and countries. Talk to your financial adviser about where and how to diversify your investments.

Don’t panic sell

Sometimes investments fall in value just because of market conditions, and then rise again, for example, during the COVID-19 pandemic lockdowns. When investment values fall it is tempting to sell. If an investor panic-sold at the start of the pandemic when share prices were falling, chances are high they would have made a loss. If they held onto their investment the chance of a loss was much less because share prices recovered. Take a deep breath before you sell and ask for advice from a financial adviser before you sign on the sell line.

5. Choose the right product for your investment goals

Have a goal when you are investing so you know how much you need by when. For example, you are investing for a deposit (R200 000) for a second property you aim to buy in 5 years time. Now you know to look for an investment that has a 5-year horizon (will achieve the returns you need in 5 years). Read more about choosing an appropriate investment for your goal in this blog.

6. Know when it is time to sell

Ideally, you should sell when you reach your investment goal. But there are other times you may need to consider selling. If your investment is not performing as expected and doesn’t look like it will help you achieve your goal, review it. Your financial adviser can help you with this review. You can then decide if it is time to part ways with your investment or stick with it. Even the top professional investors make some poor investment decisions.

7. Keep an eye on fees

Know what investment fees you are paying and how they affect your investment, and any other costs. Investment fees can affect your returns, so the lower the better!

8. Check your statements

You should receive regular statements (once a year at least) with the details of your investment. These will show how much you invested and how your investment performed (what the return was), and how much it is worth now. Your statement will also have details of the fees you are paying, such as management fees and any advice fees. Check your statement and track how you are on target (or not) to achieve your goal.

Have some fun

Make investing a lifelong journey, and know that there will be a few ups and downs. Learn from these so you can replicate the successes, the good investments, and avoid the bad! Always be prepared to learn more and encourage your family to learn with you! Your investments can help you reach your goals and be a lasting legacy for future generations.

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