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By Thembisa Mapukata | Oct 27, 2009 | COMMENTS [ 0 ]

THIS week we focus on important investment principles to consider when saving for a child's education.

l Understand your time horizon and risk profile - if you have 18 years to go before your child enters college, you have enough time to invest in volatile markets, which should ensure the best return on investment. But if you only have five years, then you should consider a more cautious investment strategy, because you won't have the time to make up for market losses.

Remember that cash is unlikely to outperform inflation over the long term, though it might be seen as a safe haven during uncertain times.

l It is time in the market that counts - not timing the market. The longer you are in the market the better your likelihood of making up for losses. (If you decide to switch out of the market when it falls, you run the risk of realising losses and destroying your wealth).

l It is better to keep investing at regular intervals over the long term. Most people want to invest when markets are doing well and tend to disinvest when the markets fall. It makes better sense to keep on investing through market lows when share prices are undervalued.

l Diversify - so that if one market does not perform well you still have other investments doing their best for you . thus managing your risk in the process. Don't focus on returns from individual investments. See your investment portfolio as a whole.

l Balance your portfolio - do not invest only in property or only in cash. Seek to maintain a sensible balance between different types of investments. There will always be times when one asset class outperforms another.

Remember cash and bonds provide stability where shares and property provide growth. Choose a professional portfolio manager whose job it is to investigate opportunities and makesound investments.

l Remember each person is unique - a good investment for your neighbour is not necessarily a good investment choice for you.

l Invest with a company that has a proven track record and that is well known within the industry - don't just invest with a company that offers astronomical returns despite current market conditions.

l A sound financial plan helps achieve success, regardless of what the market is doing. So, consult a financial adviser or broker who complies with the Financial Advisory and Intermediary Services Act. A financial adviser will assist you in compiling a holistic financial plan that meets your requirements and that takes your circumstances into consideration.

Ensure that you budget and that you have medical cover, an emergency fund, and protection against the financial risk of death, disability or dread disease. Ensure that you have a legally valid will.

As a parent, it is important for you to plan for your own future. Life is full of surprises, some of them nasty. So you should also consider death and disability cover to ensure that your children will be able to receive an education, even if you are no longer able to make investments on their behalf.

l The writer is a marketing manager at Old Mutual


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