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Savings and investment basics

27 October 2016 Floris Slabbert, Ecsponent Financial Services
Floris Slabbert from Ecsponent Financial Services.

Floris Slabbert from Ecsponent Financial Services.

It’s never too late to start taking steps to secure your financial future. And while everyone is different, and our saving and investment behaviours are likely to depict this, Floris Slabbert, National Operations Executive at Ecsponent Financial Services believes starting with a few saving and investing basics should set you on the right track.

Here are his top three suggestions to help you get back to the basics of savings and investments:

1. Know your options

There are many types of investments and while the details of each can be overwhelming, there are some basics you should familiarise yourself with.

-Shares: Shares or equities represent partial ownership of an organisation. So, by buying shares (or investing in the business), you stake a claim in the future of the respective company and potential investment returns that it may result in.

-Preference shares: Preference shares are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued.

-Bonds: A bond is like an ‘IOU' for money loaned to an organisation, or even government, by an investor. In return the organisation pays the investor a return on the investment and returns the investor’s capital at an agreed time.

-Unit trusts: Unit trusts are portfolios of assets such as equities, bonds, cash and listed property. Investors can buy units of the overall portfolio, allowing them to spread their investment risk, whilst getting the benefits of professional fund management.

-Money market investments: Money market investments or funds are pools of short-term investments that can usually be redeemed with little or no notice.

-Exchange-traded fund (ETF): An ETF is a basket of securities traded throughout the day on an exchange. ETF share prices change based on supply and demand.

2. Review your options

While you may have a greater appetite for risk in your twenties and thirties, once you have children or are approaching retirement, you may want to diversify your investment portfolio with a low-risk investment. It is essential to review existing structures and decide whether or not they are still optimal or relevant at different stages of your life.

3. Understand asset allocation and diversification

Simply put, asset allocation is deciding how much of your capital to invest in each investment category.

Diversification is the practice of investing in different types of funds (or securities) to reduce risk. Following the mantra of not putting all your eggs in one basket, diversification is an important part of asset allocation.

“At the end of the day, it is essential to educate yourself about savings and investments to achieve the best possible results. To do so, it is advisable to enlist the help of a qualified financial advisor to help you figure out how to structure your investment portfolio to maximise returns based on your risk profile,” concludes Slabbert.

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