A well-managed investment can yield real returns to fulfil your financial objectives, but it takes time, knowledge and experience to achieve investment success. Without financial know-how, you may fall into common pitfalls that could otherwise have been avoided.
It may be in your interest to consult a reputable independent financial advisor from the outset. He/she can help you decide which types of investments will suit your needs.
The benefits of conferring with an independent financial advisor are that they…
- Are independent of any investment service provider.
- Can advise which investment products will suit your circumstances.
- Help set appropriate financial objectives.
- Make you aware – and how to avoid – the common investment pitfalls.
Common investment pitfalls include:
- Investing without a specific plan
You need to have a clear, appropriate set of financial goals before considering investment options. Do you need to save for your child’s education? Do you need retirement savings? Take some time and think about this before you make any decisions. It is a good idea to enlist the services of a financial advisor at this point.
- Choosing the wrong investment product and/or unit trusts
Once you have a concrete plan, it’s important to apply it effectively through choosing the correct investment products and/or unit trusts – each are geared towards achieving different investment objectives. For example, a retirement annuity (RA) has the benefit of allowing your contributions to be tax deductible but, barring specific circumstances, you’ll only have access to this money when you retire.
- Forgetting about inflation
Over time, your money can lose its value due to an increase in the cost of goods and services; essentially, leaving you able to buy less with the same amount of money – this is known as inflation.
Your investment should yield a return that can (at least) compensate for the change in the inflation rate over the duration of your investment – this can help maintain the value of your money.
- Not preserving your retirement savings when you change careers
If you change careers, prioritising preserving your money through investing in an appropriate savings product is a good idea. If you opt to take your retirement savings in cash instead of preserving it , there’s a chance that you will not have enough money to live off when you retire.
- Limiting yourself to one market and one asset class
Diversification is a key factor to a successful investment. For example, investing in an equity fund may have the potential for higher returns over a long period of time. However, it’s susceptible to fluctuation which could last for a significant amount of time. Furthermore, you’re invested in one asset class; in this case, shares.
A balanced fund, on the other hand, invests in a number of asset classes including shares; property; cash and offshore, which provides more stability and lower risk.
- Making decisions based on emotion
Many investors make two errors that can lessen the value of savings: trying to find the best time to enter the market and switching between investments too often. A financial advisor can help investors minimise doubt – especially during volatile market conditions – so that you keep a level head and avoid making decisions for the wrong reasons.
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