In tough financial times don’t put all of your financial eggs in one basket
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With interest rates rising, it is the right time for people to start spreading their savings and investments around and thinking about ways of getting the best returns on their money. Picture: Freepik
Having all your assets and savings – your financial eggs – in a single basket and having one of those whoops moments if the basket gives way could lead to financial losses, according to John Manyike, head of financial education, Old Mutual.
Manyike said that in these tough financial times having all of you ‘money eggs’ in a single place should be avoided.
With interest rates rising, it is the right time for people to start spreading their savings and investments around and thinking about ways of getting the best returns on their money.
Manyike said: “There are many ways of saving your money.
“Choosing what is right for you means scanning the market and spreading your cash across different products. What should never be forgotten when saving or investing is that life is unpredictable. You should always have savings available to cope with emergencies or to handle financial shocks as they say.
“Not all investment vehicles are the same. Some investments may be impacted by external forces, and their value can change. The most common of these investments are shares listed on the stock exchange and property,” he said.
Here are the advantages and risks of different investments:
Buying equities (shares)
Buying shares means owning part of a major company.
If the company performs well, then the value of the shares increases, and the shares can be sold at a profit. The company will pay dividends, sometimes twice a year, for each share you own for using your money. However, when times get tough, the share values can drop.
“Over the long-term, however, shares usually offer better returns than typical savings accounts,” Manyike said.
Property
According to Manyike, investing in property and using rental income to pay the bond, however, people will still have to carry maintenance costs and pay tax on the income.
“Over the years, buying shares and investing in property has been simplified by the introduction of unit trusts that specialise in property and other types of investments. These schemes pool investors’ money and have experts buying shares on behalf of the unit trust holder.
“The advantages of unit trusts are that they have no, or low, minimum investment requirements and allow short-term or long-term investments with unlimited withdrawals,” Manyike said.
Other investments that are often considered include:
Bonds
When you buy a bond, you are lending money to a business or government to help them raise money for a project.
Manyike said: “You receive interest, and your original investment is returned when the bond matures by reaching its defined date, which could be up to five years after the investment.”
Stokvels
Stokvels, a traditional way of saving has assisted millions of South Africans in reaching short-term and long-term financial goals.
As many are community-based schemes, they have the advantage of;
– knowing your fellow investors and sharing outlooks regarding money
– regulation through a constitution
– people appointed to account for day-to-day investments
Some stokvels have reinvented themselves and have partnered with formal financial instruments and use formal instruments to grow their wealth.
“Compound interest means that you earn interest on your interest, and the point can be reached when your original investment doubles itself and then grows more.
“What is most important is that you get saving and investing as soon as possible,” Manyike said.
Whatever you do, its is important that you speak to a financial advisor to help you create a plan that suits your needs, preferences, risk appetite and personal circumstances.
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