There are different asset classes in which to invest, for example, equities, bonds, cash or property. Each offers a different return and risk experience. If you invest carefully in each class, you will achieve the best overall outcome.
Investing is a methodical process that starts by identifying desired investment goals. The earlier you start, the greater the end reward.
There are many options along the investment continuum, each designed to meet different needs and with different degrees of flexibility and tax implications.
Investment options include bank deposits, money-market accounts, unit trusts, endowments and retirement investment products.
An endowment with a minimum five-year investment term is considered a medium-term investment yet is very flexible when it comes to accessing cash. It is a fine savings vehicle for an anticipated event like financing a university education.
Retirement annuities fulfil a completely different role. They are less flexible, long-term investments which enjoy tax benefits not available with other investments. Annuities are the ultimate safety net: you can’t get your hands on the cash until you retire and nor can your creditors.
Diversifying and isolating retirement investments is the best way to build a nest egg. Even if you start out saving only small amounts you can still build a substantial, diversified investment portfolio.
There is always a trade-off between risk and return, as seen in the diagram below. Staying with low-risk assets will affect future growth potential, as the lower risk assets are correlated to lower returns in the long run.
It all starts with careful planning and a firm commitment to ongoing, regular saving along the investment continuum.
henk.neuhoff@liblink.co.za
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