Before I began working in the financial services industry, I understood very little of the jargon and terminology used, or how investing works. Fortunately, I have been privileged to become a part of the investment world, and I have learnt so much about better managing my finances and investments during my career.
However, for those who have not been exposed to the world of finance and investing, I know just how difficult getting started can be. With that in mind, here are two of the key lessons that I have learnt on my own investment journey:
1. You can own a portion of other people’s businesses – without being rich
Growing up, I had no idea that you could invest in or buy a portion of a company through purchasing shares. In my mind, only rich people who owned businesses themselves could own companies.
If I had known then what I know now, and had invested in shares, I may have been far better off financially by now, as shares offer the best potential for growth over the long term. For example, in June 2010 you could buy a share in Naspers for R260. Today that same share would be worth R3,062, meaning that your investment would have grown by nearly 12x within 10 years.
However, the future growth or performance of shares is never guaranteed, and it is impossible to know what will happen to Naspers in the future. And while the benefit of hindsight makes picking winning shares look easy, it is just as easy to pick a share that disappoints, meaning that your investment loses value. An extreme example of this is Steinhoff. In June 2010, a share in Steinhoff was worth R18.98, but today is only worth R1.02.
This brings me to my second point.
2. Picking investments can be intimidating – but this is where the professionals can help
For a long time, I simply avoided shares altogether, and saved my money in interest-bearing accounts, particularly in bank call accounts and money market funds. These types of funds and investments are great if you are saving for a specific short-term goal, or if you are looking to save for a year or less. However, while these investments are low risk, they also offer slightly lower returns, meaning that you risk allowing inflation to eat away at the value of your money over longer time-periods.
As a long-term investor looking to invest your money for at least five years, you may instead want to consider riskier investments such as shares, property and bonds. These offer the best chance for building your wealth over the long run.
But with the huge number of investments on offer, attempting to pick the best investments for yourself can be extremely intimidating. Luckily, there are many platforms available that offer basic financial portfolios for you to choose from to help simplify your investment decision.
For example, I myself have invested in one of the Cannon Asset Managers investment bundles on offer on the Easy Equities investment platform. Each of these bundles blends a mix of asset classes, including cash, bonds, properties and shares, to specifically suit the needs of different types of investors with different investment preferences, risk appetites and time horizons.
That said, if you’re at all uncertain or unsure, consult a financial professional for guidance – that’s what they’re there for.
My investment journey has been exciting and full of hope, and I look forward to great returns and many more lessons in the future.