What are investments and what can they do for me on my journey to financial confidence? Sherwin Govender, Business Development Manager at Glacier by Sanlam, offers some answers, by looking at the purpose and goals of investing.
As an investor, what is your purpose?
You might answer: “I want to be rich.” However, that answer is meaningless, open-ended and won’t help you. What is your actual goal? Is it saving for your child’s education? Is it to buy a property? Probing your very specific reasons for investing will help your adviser design a financial plan that includes a diversified investment portfolio that will meet your needs and goals.
What to know about goals
An effective goal is not the same as a wish or a dream. Here’s what to know about goals:
- They are deeply personal and specific – e.g: “I need my money to provide an education for my child at a good private school.”
- They have timeframes – e.g: “I want to travel abroad on holiday, every two years.”
- They are realistic and achievable – e.g: “When I retire, I want to have the kind of lifestyle that allows me to continue to afford eating out at a different restaurant every week.”
- They are not broad or vague – e.g: “I want to be rich.”
- They are not unrealistic – e.g: “I want to be the richest person on the planet.”
Determining when you will need to access your money (i.e. your need for liquidity) is critical, so it’s important to distinguish between goals with ‘soft’ and ‘hard’ deadlines. For example, your goal to travel abroad every two years has a soft deadline, as going on holiday is not a critical, life-impacting need. Your trip can be delayed. However, your goal to provide for your child’s education would be life-impacting and, therefore, has a hard deadline.
What is your relationship with your money? That’s a key question.
The relationship you have with your money is likely to be deeply emotional, and you probably don’t even know it.
Recently, a family member (let’s call her Penny) wanted to know if the R600 000 that she kept in her bank account for emergencies should be invested in a better savings product, and what solution I would recommend. After some probing, I established material facts about what this savings fund meant to her, and how her relationship with this money had a direct impact on how it could or should be invested:
- She is a single parent, and determined to give her child the best education money can buy.
- Penny loves to travel and dips into this fund every second or third year to go on holiday abroad. The value of her money has become a concern for her in light of the currency exchange rate.
What could Penny’s diversified portfolio look like, taking into account her goals?
The solutions align with Penny’s goals and together combine to form a diversified portfolio that is efficient from a tax and risk management perspective, allowing for currency fluctuations and giving her access to funds when she needs it.
All capital sums and solutions quoted in this article are for illustrative purposes only. Please consult an appropriately appropriately authorised adviser for a holistic financial plan that includes a diversified investment portfolio.
