Off The Beaten Track

Investing, Fast and Slow

Image: Lifehack.org

There’s a little panic that sets in, and takes a while to leave when you first start investing and you’re also on the wrong side of 25 (Or 30). SO many things have your attention: should you buy a car, how about a house? What do you save up for first? Where do you even begin investing? What if the markets crash? Do you have enough money saved in your emergency fund? All these questions can leave you overwhelmed by the process of organising your finances which can either drive you to make reckless investing mistakes (which can lead to losing money) or put you off investing completely.

Investing fast

What do we mean by ‘investing fast’. First of all, start now, or as soon as possible. This isn’t watching markets and buying shares to sell at higher price points, that’s trading. If you’re inexperienced and hope that trading will turn R20K into a million in 4 weeks, you move from trading to gambling. The longer you put off investing (because you think ‘it’s too late anyway, so what’s a few months?’) the more you lose out on taking advantage of the 8th wonder of the world: compound interest.

Invest frequently: While lump sum investment are great, monthly contributions allow you to take advantage of market movements, so risk of buying too high, or at a time where markets are haywire works in your favour. You don’t have to keep trying to time the markets.

Increase contributions when your income increases: The first impulse we generally have when our income increases is to ‘upgrade’. We move into a bigger home, buy a bigger car or spend more money. It would serve you to keep your spending habits the same and increase your investment contributions. The best way to try and compensate for lost time is to increase your contributions. The more you invest, the bigger your capital contributions, and the greater interest your investment yields.

If you’re going to time markets anyway, buy as low as possible: Taking advantage of market slumps can be beneficial to your portfolio, provided that the shares you’re buying will appreciate. With a long term view, you give yourself time to wait for conditions to turn around. The trick in investing is this: never panic. Especially when everyone else is. Keep a cool head, do your research, sleep on it. If you know a good stock is going through a slump, take advantage of it. You’ll be glad you did, 10 years down the line.

Automate: If you struggle with discipline now, find a way to automate your investing. Whether that involves handing money over to a broker to manage, or making debit order arrangements, you’ll decide what works best for you. However, you don’t miss what you never see; a good way to leave your investment unbothered is to automate and forget about it.

Investing slow

This has to do with your long term strategy, patience and a lot of discipline on your part.

Time: this is your biggest ally when investing. When you invest, always have a long term strategy that overrides you short-term and medium term goals. Your long term investment could be your retirement annuity or pension fund. You can also start your own investment outside what your employer sets aside for you. If you’re self employed or own your own  business, it’s worth taking time out to see how you can develop a strategy that suits your needs. If finance and investing on your own scares you, see a broker or planner.

Take advantage of tax breaks: Thankfully we now have tax free savings accounts. Secure your investment from tax cuts by adding a tax free savings account with equity exposure to your portfolio. Save as much as possible in your TFSA, just be sure to keep an eye on how much you contribute so that you don’t exceed the annual cap. We advise that your TFSA forms part of your long term investing strategy so that you can avoid having to withdraw these funds as the capital cannot be ‘replaced’ once withdrawn.

Think wealth, think long term: Patience is imperative. Look carefully at the shares or funds you’d like to invest in. How have they performed in the past 5, 10, 20 years? While past performance doesn’t necessarily dictate future performance, you’ll find that markets tend to follow a particular cycle. Understand how markets work, and do research on the shares and funds you’re invested in, or are looking to invest in. If something doesn’t seem right, or if it’s beyond your comprehension, err on the side of caution. Be especially careful when investing in fairly new companies because you don’t have much history to lean on.

Diversify: Your investment portfolio, when short or long term, should never consist of one of just three shares that you heard about on a radio show. Diversification is important because sometimes certain shares or sectors perform differently from the market as a whole. Having a diversified portfolio will cushion you from market sector fluctuations, instead of you owning

Reinvest: When we talk about investing slow, we talk about having the patience and discipline to invest, reinvest, and still reinvest further. Allow your interest to do the work for you. It’s a good idea to reinvest dividends when they’re paid out by companies. Much later on, when you investment had grown, you might be able to live off your interest pay outs while you capital continues to do the work you employed it to do and you get to pursue your own personal goals.

 

 

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