The secret seven: Use these rules to invest with safely in any market

Fsp Invest, 29 Nov. 2013

Tags: invest, invest with confidence, how to invest safely, rules for safe investing, investing, investing rules,

2008 ruined everything! When the global stock market collapsed, it took with it investors’ confidence in the market. Despite things having improved dramatically since then, many would-be investors are still sitting on the sidelines waiting for confirmation that history won’t repeat itself. While we can’t promise you that, we can provide you with some advice on how to invest safely no matter what. And today, that’s exactly what we’ve done…

Below, the team of experts behind The South African Investor reveal the rules you need to follow if you want to invest – without giving up your security.

How to invest safely in any market

#1: Get to know history

Real growth comes from being in the market a long time. So before you invest, always look at how the product or share has done over the past one-, three-, five- and even ten-year period. This should give you a sense of how it’s performed during the very worst and very best market periods.

#2: Diversify – not just between shares but between assets, investment categories and geography
Ok – so you’ve invested in a variety of shares from different sectors but have you spread your money into different countries and asset classes as well?

After all, SA is a commodity driven economy so when mining sector woes hit, our market doesn’t do so well. The same is true for shares. Sometimes they perform better than bonds, sometimes worse. To make sure you’re not negatively affected by normal market dips, diversify your wealth smartly.

#3: Speaking of geography, strive for balance
“This will shift according to market outlook, what economies are doing and ought to be subject to your investor profile. Some categories will perform better than others and that’ll help to contain your downside risk,” explains the team.

#4: Be systematic with your investment approach
If you invest a fixed amount on a regular basis – known as rand cost averaging – you’ll come out ahead of an impulsive investor. This because it allows you to eradicate any concerns you might have over the specific price you’d like to buy at. And it eliminates any emotional reaction you might have to short-term fluctuations in the share price.

#5: Do your due diligence!
Follow Warren Buffett’s advice: If you don’t understand the investment, don’t invest in it. Know what you’re investing in to ensure you don’t end up with egg on your face.

#6: Get educated
Ever lost money? We’re willing to be it’s because you didn’t ask the right questions. “You won’t know the answers, but if you make an effort to inform yourself, you’ll know what questions to ask and you’ll be a better investor.” And remember, if you have an investing question and want an expert answer, you can ask it here. And don't forget to consider the tax implications of selling an investment.

#7: Be realistic
“The inflation-adjusted returns from an investment will always be less than the actual return. If you set your financial goals without considering the effect of inflation, you may not achieve your ultimate aim,” says the team.

Bottom line: Stick to these seven rules and safe investing can become a reality.

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