Before you jump in, work out an investment strategy

I often consult with people who have no investment strategy. They know what their investment goals are, but they have not yet formulated a strategy to reach these goals.

I often consult with people who have no investment strategy. They know what their investment goals are, but they have not yet formulated a strategy to reach these goals.

The first step in this strategy is to identify one's time frames and the level of risk that you are prepared to take, that is, what are your long- and-or short-term goals? Should the situation arise, how much money would you be prepared to lose?

If your answer to the latter is none, you are extremely risk averse. Make sure that you are comfortable with your investment strategy.

As an investor you need to identify whether you prefer to invest in individual stocks or in a diversified portfolio of stocks. Your decision will be influenced by the amount of risk that you are prepared to take.

A well-diversified portfolio of stocks or unit trusts, which includes all the Satrix funds, will offer a more efficient spread and a lower level of risk, whereas investing in a few individual stocks increases the risk. A well-diversified portfolio will include funds invested in a variety of strategies, industries and market sectors.

A common mistake is buying a stock because of current market momentum and hype. It is often those stocks that fall the hardest.

Buying stocks based purely on market momentum and trends is very risky and could result in monetary loss. At present it is the resource sector that has shown superb returns, but there is no guarantee how long this trend will continue.

Be in there for the long haul. Set out for long-term investments with a buy-and-hold strategy instead of having an active trading approach.

Acting on rumours and tips can also have a negative effect on your investments. More often than not, by the time you receive a tip, it might already be old news. Instead it is wiser to establish a long-term relationship with an investment adviser who will assist you in making educated, objective and efficient decisions.

Do not have unrealistic expectations of the markets - markets do rise and fall. Do not expect to invest on day one and already make a profit the next.

In order to have a successful investment strategy you have to ensure that your expectations are in line with your actual investments.

Understanding the volatility of markets falling and recovering in quick succession, as well as the fact that markets can stay down for long periods, must form part of your planning.

lThe writer is director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail help@pioneer.co.za

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