NAIROBI, Kenya, Jun 17 – We all invest for specific reasons, but the underlying motivation is wealth creation or to acquire long-term financial freedom. Successful investing involves making choices that meet your unique needs and your financial goals for the future. Your personal circumstances will affect your decisions every step of the way.
Whether you are saving for a home, retirement, or your child’s education, you want a plan that will help your money grow. Here are six important investment tips that can help you acquire long-term financial freedom.
1. Know yourself
We all have different investing goals and different time frames for achieving them. Some are short-term like saving for a vacation or a car, while others are long-term, like retirement. In addition, every investor has a different comfort level with investment risk.
2. Start early
Maintaining a decent standard of living in the future is likely to be a key element of your financial planning. The earlier you start saving regularly, the more cost effective the savings process will be. Delaying the process even for a short period of time, could have a substantial effect on the final investment value particularly with the concept of compound interest.
This means that a penny saved is a penny earned, but a penny saved today is a penny earning more. It is important to start saving as soon as possible for events such as retirement due to the impact of compounding. If you start saving now you will need to save considerably less than if you wait a few years.
3. Invest regularly
It is generally much easier to come up with a smaller amount to invest on a monthly basis than to make a lump-sum contribution. A regular investment plan allows you to choose when and how often you make contributions thus ensuring that you make investing a priority.
The question many investors would ask is – how can I lower the average cost of investing? Investing smaller amounts in mutual funds over time or dollar cost averaging can mean lower average costs than if you make infrequent purchases. For example your money will buy more units of a mutual fund gains in value over the long-term, you’ll profit from your purchases during short-term price declines.
In addition, you don’t need to worry about the best time to invest when you advance the same amount every month. This strategy can help reduce anxiety about portfolio declines, by focusing attention on the bright side—when the market is down, you’re buying shares at bargain prices. It does also require you to continue investing despite fluctuating prices.
4. Build a diversified portfolio
Spreading your assets across a wide range of asset classes, currencies or geographical regions is an effective way to reduce risk and increase potential returns over the long term. Holding a mixture of different types of investments will help cushion your portfolio from downturns, as the value of some investments may go up while the value of others may go down.
5. Align your investments with your time horizons
The type of investments you choose will depend on whether you are saving for long-term or short-term goals. For your long-term goals, you may want to consider long-term, growth-oriented investments. Your short-term goals call for investments that are more conservative, and more accessible, for example if you are investing to save for a down payment on a home, you’ll want quick and easy access to your funds.
To save for the short-term, consider investments that are more conservative in nature and more easily accessible. To save for the long-term, you should consider a diversified portfolio which may include a growth component.
6. Consult your financial advisor regularly
Financial Advisers are trained to focus on your financial goals, your time frame and your comfort with volatility. It is very important to examine your investment portfolio with a financial advisor on a regular basis to ensure that it continues to meet your financial objectives. Market conditions, life events (marriage, children and retirement) and changing goals are cues to review your portfolio.
Given the variety of investment options available and that each investor’s financial goals and circumstances are unique, it is recommended that you discuss your investment options with a qualified professional to find the solution that’s right for you.
(Renaldo D’souza is the Marketing and PR Coordinator at Winton Investment Services Ltd, an Offshore Investment Advisory Company based in Nairobi)