Unless one has been living under a rock, you may be well aware of all the noise that constantly hits our TV and social media screens, one specific story which has had many people reconsidering eating polony on their sandwiches has been of particular interest to me.
I shall try to use the outbreak of listeriosis-linked products to that of an investment and whether one should make changes to your investment / polony eating ways due to some media noise.
The world over, there will always be bargain hunters, those who make hurried investment decisions without truly considering their long-term financial goals. This column is not intended to tell you how to manage your investment portfolio during a volatile market, or one which has lots of noise, it is merely a means to provide you the reader with tools to make an informed decision.
I would like to highlight 10 areas of importance:
1. Put everything out on the table
Before making any investment decision, sit down and draw a personal financial roadmap. Take a long honest look at your complete financial situation. If this requires ascertaining information from your debtors, financial institutions etc. then do this. More specifically if you have never made a proper financial plan, the best time to do so is now.
2. Set your own goals
Before any real plan can be set up, you will need to map out your financial goals, this can be done alone or with the help of a trusted friend or partner.
We all have goals, and investing towards these goals can be challenging for some, but knowing exactly what our objective and end goal is makes the journey all the more rewarding. When one follows through with an intelligent plan, gaining financial security and enjoying the benefits of your hard earned money will be the outcome.
3. Evaluate your comfort zone in taking on risk
With any investment there will always be some degree of risk, however, it is imperative that you understand the type of investment in detail before purchasing it. What is key is that the reward for taking on risk is the potential for a greater investment return. Any financial goal with a long time horizon, will almost always ensure you achieve greater returns when you are invested in asset classes such as stocks or bonds, opposed to risk averse assets such as cash equivalents. When the time horizon of your goals is of a shorter nature, investing solely in cash related instruments may be most appropriate. The only real risk with cash is inflation, which is the risk that inflation will erode returns over time.
4. Diversify a suitable mix of investments
When including asset classes with returns that fluctuate both up and down under varying market conditions, this will safeguard your investment against losses and severe fluctuations on investment returns, and achieve the uptick when certain asset classes perform well.
Usually market conditions that cause one asset class to perform well often causes other asset classes to have poor returns. By diversifying your mix of assets, the risk of losses is reduced considerably and a much smoother counteract will occur across the portfolio.
What is key here is asset allocation, this will determine whether you will meet the initial financial goals set out.
When not enough risk is attached to your portfolio your investment will take longer to return what is needed to achieve your pre-set goals.
5. Create but also MAINTAIN an emergency fund
It cannot be stressed enough that having an emergency fund is critical for any and all of life’s uncertainties. Maintaining this emergency fund which should be readily available will allow for peace of mind for any unforeseen cost or expense, and as tempting as it may be to use this for lifestyle expenses, taking out a micro loan is not your best option by any means. The repayment of micro loans can often reach double if not triple the initial loan amount.
6. Settle high interest debt as a priority
There is no investment strategy that will pay off as well as, or with less risk than paying off all high interest debt you may have. From credit cards, overdraft facilities, personal loans, micro loans, the wisest thing you can do for yourself is to settle all balances in full and as quickly as you can.
7. Just keep adding
Through the investment strategy known as ‘dollar cost averaging,’ one can protect themselves by following a consistent pattern of adding funds to your investment over a long period of time.
By simply making regular contributions, be it monthly or by-monthly, you will consistently be purchasing shares in an investment when prices are low and less of the investment when the prices are high. In any market condition, regular contributions is your best friend.
8. Take the ‘free cash’
With many employer contributed retirement funds, an employer will either match or scale the contribution to that of the employee.
If you have the possibility to contribute more to your pension fund to get your employers maximum match – take up this opportunity immediately, it is free cash you are passing up if you don’t.
9. Annual check-in’s
Key is committing to your plan. However, goals change and so does one’s salary. The cost of living is increasing, and so should your contributions to your financial goals. Forget the noise in the market, as this will only ever cause a blip to your investment, however, time will always favour your returns.
10. Forget about the get rich quick schemes
Too often there will always be the opportunity of a lifetime schemes, opportunities that are just too good to be true.
And that is exactly what it is, too good to be true. Do your homework, talk to trusted persons in the know and always take your time before making any decision that you may regret.
In conclusion, patience and having trust in the asset manager you choose to partner with is key to long-term investing.
Short-term fluctuations will always be, and some may last a bit longer than we may be comfortable with, but be assured that the market is going to go up! Then it is going to go down. Then it will go up! Then down, then up, down, up … and so on.
Keep focused on the plan, and align your investments to that plan.
Warren Buffet once said, “Only buy something that you’d be perfectly happy to hold if the market shuts down for 10 years because the worst risk comes from not knowing what you are doing”.
I shall continue eating polony, noise shall not deter my craving for polony sandwiches, however, just like an investment I will be sure that I have done my research and understand what I am eating.