Perhaps
one of the saddest things that happen in the world of personal finance is when
investors fail to invest with sufficient risk to achieve inflation-beating
returns. It is a mistake often made by DIY investors who neglect to get advice
and end up investing in the lowest risk investments because they are too scared
to make a wrong decision. Where will you get the best return on your
investments – shares, unit trusts,
property or something else?
The
result is that when they do wake up and realise that they are not keeping up
with inflation, they make a knee-jerk decision in an attempt to play catch-up.
That’s when things tend to really go wrong.
Procrastination
is a thief of investment returns. Decide on your needs and goals early on, know
your risk tolerances and write them down. Next make a plan with or without input
from a financial adviser – but how would negative returns along the way affect
this plan? What are the odds of some better than expected years? What is the
greatest loss you could sustain without seriously negatively affecting your
lifestyle?
The
key here is that it is all about planning your finances first, then selecting
the investments and their mix – thereafter monitoring them along the way to
support that plan.
Yes,
good returns are important, but good, sustained diversified, tax-efficient
investment returns, selected to achieve your planned objectives and deal with vigorously
changing market environments are even better, and if your need is to plan for
retirement or education for your children or a wedding for a daughter you will
have some key dates already in your mind.
This
is one way that you will know how long your investment should be – it is no use
committing to a long-term investment strategy if you have a short time frame
until you need the money.
How
long you have to get your required investments returns affects what mix of
investments you choose.
