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Balance present needs with capital growth

By unknown | Jan 22, 2008 | COMMENTS [ 0 ]

Investors wanting to create wealth are often unable to differentiate between peace-of-mind solutions and creative-investment strategies.

Investors wanting to create wealth are often unable to differentiate between peace-of-mind solutions and creative-investment strategies.

A further stumbling block arises when investors try to achieve high rates of growth, yet have a simultaneous need for income.

The two situations must be dealt with separately.

Let's first look at income. Peace-of-mind solutions should encompass three criteria:

l Death too soon. Are there two breadwinners in your family? Do both provide cash for the family and is there sufficient liquidity for debts?

l Living death. You need to provide income or capital for the possibility of both temporary and permanent disability, as well as dreaded diseases. Are you adequately covered for major hospital expenses?

l Death too late. Using today's income needs and projecting to retirement, have you calculated how much capital will be available at retirement and the income this will provide each month, and taking inflation into account?

If your planning has been adequate, chances are you will be able to maintain a reasonable standard of living.

Once this strategic foundation has been laid, all future financial investment plans need to be made with the objective of creating wealth. And to achieve this, you need to consider different investment avenues.

History has proved that investing directly into the equities market, shares and property, with a long-term horizon of 10 years, will help to create relative wealth.

There is ample evidence to prove that a well-chosen portfolio of shares over a long term will create greater wealth than many traditional insurance or investment products.

In terms of an investment strategy where you are looking for income and growth, you need to split your capital into two investment strategies.

The first part is to provide income in line with what could be generated from this part of the capital.

But remember that the income portion will be reduced by inflation. You therefore need a strategy to increase this income to absorb the negative effects of inflation.

The remaining capital should be invested for at least seven to 10 years.

A number of products are available in which the remaining capital could be invested to provide for capital growth. These opportunities cater for both local and international investments.

Always ask yourself if you are investing for capital growth or if you need income. This way, you will be covering both the entities you should consider in your overall plan.

l Bryan Hirsch is chief executive of Pioneer Financial Planning. Visit or e-mail for more.


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