Retirement Planning
There are few basic rules you need to remember when making investments and planning for your golden years.
The global economic crisis had an upside in that it encouraged many South Africans to think about how to better manage their finances, start saving for the future and plan for retirement. The financial services industry has many savings and investments options and this has led consumers to feel confused about how to start saving for their retirement. Should one invest directly in the stock market, invest in a retirement annuity or unit trust. The key is to concentrate on the basics and to make sure you are getting some fundamentals right.
START EARLY
The average person has only 500 pay cheques to contribute to their retirement in one lifetime. The earlier a person starts, the better off they will be, as there are limited opportunities towards retirement.
KNOW YOUR RISK APPETITE
Before committing to any investment product, investors need to understand their risk profile. A willingness to possibly lose value in an investment, with the view that it will pay off, in the long run determines an investor’s risk profile. All investments are to subject different types of risk, which can affect the investments return. Most investors will know that although cash is very low risk, the returns earned from keeping cash are minimal as well. Bonds are affected by the risk that interest rates will increase and this decrease the value of the bond. Stocks are higher risk vehicle because they can be affected by events that are specific to a company or its industry. These risks make some investments more suitable for longer investments periods or shorter investment periods.
Before committing to any investment product, investors need to understand their risk profile. A willingness to possibly lose value in an investment, with the view that it will pay off, in the long run determines an investor’s risk profile. All investments are to subject different types of risk, which can affect the investments return. Most investors will know that although cash is very low risk, the returns earned from keeping cash are minimal as well. Bonds are affected by the risk that interest rates will increase and this decrease the value of the bond. Stocks are higher risk vehicle because they can be affected by events that are specific to a company or its industry. These risks make some investments more suitable for longer investments periods or shorter investment periods.
MAINTAIN REASONABLE RETURN EXPECTATIONS
One should review their portfolio every year. When developing your financial goals, you will typically decide how much you need, when you will need the money, how much you will earn on those savings. Those factors will determine how much you will need to save on an annual basis to reach your goals.
DIVERSIFY
Diversification is a defensive strategy- it protects the investments portfolio during market downturns and helps reduce volatility. It is important to diversify among and within investments categories. An investor’s portfolio should include a combination of some domestic and offshore equities, bonds and cash.
THINK LONG-TERM
Timing the market is a difficult strategy to accomplish successfully, since so many factors affect the market. Most people, including investments professionals, have difficulty timing the market with accuracy. Instead, concentrate on setting an investment programme that works in all market environments and stick with it in good and bad times.
TAXES
Taxes are probably a portfolio’s largest expense. The government has given some great tax ben efits to encourage people to save for retirement. Use them! The compounding impact of tax-free returns on income and capital gains over 20 years can make a difference to a more comfortable retirement.
Original article The New Age by Loyiso Sibali
You can contact Magda 0761304130 or mbosman@oldmutualpfa.com
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