Investment opportunities and proposals abound, but never forget that every investment poses a risk.
Banks, money-management firms and financial consulting bodies research the data published by banks and investment bodies to evaluate and compare the different risks.
Regardless of the recent equity rally, a bear market will expose the mistakes of thousands of investors. Many try to get rich in the short term and overlook the most important factor about returns - risk.
Risk factors can be divided into corporate business viability, economic factors such as inflation, and political factors such as unrest in various regions of the world.
Inflation is a significant factor, because in the long run it dimi- nishes the sum of your capital as well as the size of your pension.
Each investor's needs vary greatly. Some need a steady income, others want to increase their capital, yet others just want to keep the value of their savings for the long run. So study the risks you are willing to take and read the material available.
Diversify your investments; even dollars under the mattress will not have the same purchasing power after years. For your peace of mind, do not put all your nest eggs in the same basket.
Most people who consult me do not have nearly enough answers to the questions put to them about their financial position. They arrive with piles of documents that have been accumulated over the years and do not have a clue how all their policies and investments fit together.
All investors must first define their needs and then select the most appropriate asset allocation to achieve their goals.
Factors to consider:
l If you are trying to achieve growth, are you prepared to invest for the long term over seven to 10 years?
l If you need income, have you looked at all the options available - money-market funds, preference shares, high-dividend shares, property trusts, assurance company products, income plans and annuities? You should also evaluate tax efficiency and the effects of inflation.
l Have you evaluated the risk you are taking because each investor has a different attitude to risk? Though you might be willing to take a risk, in some instances you would be well advised not to take more risk than necessary.
Whatever action you take understand and factor in the effects of costs, time period, guarantees, liquidity and risk.
Bryan Hirsch is chief executive of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail firstname.lastname@example.org for more information .