Without any doubt, the need for a properly diversified and professionally managed investment is vital.
We have seen a number of investigations by the Financial Services Board, where investors have lost a lot of money due to investment strategies that are not suitable to their needs; financial goals or THEIR money is invested in portfolios that are not in line with their risk tolerance.
There are several steps involved in investment planning. Today let’s only focus on THREE basic steps:
KNOWING YOUR CURRENT FINANCIAL SITUATION
With the help of a financial planner, assessing where you are financially will determine which strategies you should be implementing. This can be done by identifying your sources of income and financial obligations.
DETERMINING YOUR FUTURE GOALS
Once you understand your current financial situation, you will be able to ask yourself the question- “financially, where would I like to be in future?”
Financial goals should be specific. Should you have multiple goals, you may want to work toward them all at once or choose to focus on one and then move to the next.
Goals could be short-term, medium term or long-term goals. Your Financial Planner will assist in your decision making and what investment strategies are in line with your financial goals.
YOUR RISK APPETITE
Do you know what type of an investor you are? Understanding risk and how it is measured is key before accepting any investment strategy. No one strategy is likely to be appropriate to everyone.
There are mainly four investment profiles which can be used to determine your risk appetite, namely:
Conservative – Low Risk Tolerance: This profile is suitable for an investor who does not like investment risk. Little inflation protection over time. A portfolio will comprise mainly on income assets, such as fixed interest and cash.
Moderate Average Risk Tolerance: An investor who can accept short term risk to their capital. Does not wish to see all of their capital eroded by inflation and are prepared to take short term risk in order to gain longer term capital growth. A portfolio will comprise of growth assets and income assets.
Assertive – High Risk Tolerance: a portfolio emphasising on growth investments, such as stocks and foreign currencies. An investor is most interested in maximising long term capital growth, although they do not want to be 100% invested in risky assets. Good inflation beating returns over time.
Aggressive . Very High Risk Tolerance: This refers to portfolios with more than 90% of the funds in growth assets. An investor is prepared to sacrifice capital in pursuit of the highest potential long term capital growth.
Every investment option represents a unique risk-return trade off. The structuring of a portfolio that suits you best as an investor mostly depends on your investor profile.
Your lifestyle and financial goals are likely to change over time due to a number of circumstances, such as marriage, having children or even divorce. Therefore it is important that your financial planner reviews your investment planning regularly.
Are you happy with your current investment planning? Does it suit your needs and financial goals?
Perhaps it is time to review your planning……..Get in touch!