The recent downturn in global investment markets has understandably made many aspiring investors a little nervous about putting their money into the share market.
However, despite the regular ups and downs that all markets go through, the consistency of investing is still one of the most effective ways of building up your personal wealth. The younger you are when you start investing, the longer you have to invest and ride out the volatility in the market – which means you have an opportunity to significantly grow your money and beat inflation.
That’s according to Sebastian Pillay, head of share investing at FNB Wealth and Investments, who said that time in the market and a well-diversified portfolio is still the most valuable component of any investment plan.
“If you were to ask successful investors what the secret is to their success, chances are good that the majority will say it’s a long-term approach with quantifiable goals, which is why starting your investment journey early in life can be one of the wisest moves you can make,” he said.
Nicole Smit, product manager at FNB Money Management, said: “As part of diversifying the extra money left in your monthly budget, your short or long-term investments need to be part of your overall money management. This means that you shouldn’t just dive into the share market until you have put all the other pieces of your personal money management puzzle in place.”
“Before you start your share investment journey, you first need to ensure that your finances are in a good position to support your financial goals and that means getting your debts under control or paid off, having a healthy savings balance in place to cover any unforeseen emergencies, and generally being in a position where you are spending less than you earn on a consistent monthly basis and your investment contribution forms part of your budget.”
Pillay said that once you have achieved this level of financial balance, investing in the share market is a logical step to move from surviving every month, to thriving financially.
He offers the following advice to help aspiring young investors to get their investment journeys off on the right foot.
Have many eggs, in many baskets
Diversification is one of the most valuable keys to investment success.
“You may think tech stocks are the next big thing but putting all your money into a single sector is very risky, because while you may make money when the tech sector does well, you stand to lose a whole lot more when the sector is exposed to a market decline,” Pillay said.
He recommends always taking a balanced approach to building your share portfolio, by including a variety of asset types (shares, bonds, property, etc.) as well as investing in shares with different geographical and currency exposure.
“Full diversification can take time to achieve, but if you are able to build up a well-diversified portfolio over time, you will protect your overall investment value from large volatility swings which can take time to recover.”
“ETFs are a great investment vehicle for the novice or even the experienced investor. ETFs come in all shapes and sizes one should consider making this the core of your portfolio which provides the diversification needed.”
Play the long game
Next to diversification, time in the market or a long investment horizon is one of the most valuable keys to the investment process. Investing in shares is not a get-rich-quick scheme. Patience consistency and self-education is pivotal to investing and achieving those long-term goals. Pillay said that the best way of doing that, is by having a clear investment objective.
“The most successful investors know what they are investing for, and unless that long-term objective changes, don’t fiddle too much with your investment portfolio – even when the market heads south for a time,” he said.
Invest with your head and your heart
“There is very little place for emotion in a good investment strategy, so you should make investment decisions based on thorough research and a good understanding of the shares and companies you invest in.
“So, just because you love watching a particular streaming channel, doesn’t automatically mean it is a good place to put your money.”
He pointed out that there is a flip side to this coin because it is also important to invest in ‘stories’ you believe in.
“So, if you have a passion for the environment and social and governance value factors (ESG), an investment in a company that takes these ethical considerations into account into their strategy and operations can contribute to making a meaningful difference with the investment decisions you make.”
Don’t waste your investment money on fees and costs
Investment options have come a long way in the past few years. Rather than having to jump through all sorts of hoops to open a share trading account and then pay significant fees every time you want to trade, you can now do it all online, quickly, and inexpensively. FNB’s Shares Zero investment platform is a prime example of this convenience and cost-effectiveness, he said.
“While it’s never a good idea to try and time the markets, the recent decline in the prices of most shares means there will be opportunities to invest in many shares at competitive prices.
“So, if you are an investor who is already practicing good money habits, and you’re in a position to invest, now may be a good time to open your FNB Shares Zero account and take that first step on an investment journey that could give you the financial security and freedom you want and deserve.”