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LEARN THE GAME: Make your money work for you.

Many investors make the mistake of panic-selling as we are barraged by diverging investment information.

Where to start with your personal financial plan

First decide when you want to retire and how much monthly income in today's rands you would like to have in retirement.

Factors such as how long you intend to invest and different tax implications must be assessed . Adding complexity will be the analysis of how high the return needs to be to provide that "pot of gold".

What to invest in - balancing a financial plan

You can invest in shares, bonds, property and cash.

Most investors close to retiring need to grow their capital at a rate above inflation net of tax and should ideally be spreading investments between the various asset classes. Equities do provide inflation-beating returns, but they also carry the greatest capital risk. Cash and bonds are considered lower risk investments, but are at the cost of lower returns.

Retirees would typically wish to have most of their funds invested conservatively in defensive assets with most in cash and bonds. Also consider that interest earned from conservative investments is taxable.

Taking into account the risk and returns to each asset class, allocate funds between the asset classes according to your needs and cash flow. The construction of your investment portfolio is something which should be done with an investment expert as the decision will have far-reaching consequences.

If you are a risk-averse person, you will choose a more conservative portfolio, while an aggressive investor may choose a more aggressive portfolio only to possibly fall into the classic trap of panic and selling.

Personal financial plan example

Assume a 45-year old investor who has R4-million and invests 15%, of a R600000 annual salary until age 65. The person will need a net pension of R300000 per annum. If he or she only invests in cash, their funds will be depleted by age 75.

If they achieve a real return (above inflation) of 2% per annum, those funds extend until age 84. But with a real return of 4% per annum, the funds extend until age 99.

During times of investment uncertainty, a framework like the one above is essential to reliably generate inflation-beating returns, and completing an annual review is time well spent. - www.fpi.co.za. - nettoinvest