Understand what the purpose of your investments is.

You started working or you’ve been working your entire adult life. You could be running a business, or you may be a CEO of a major corporation. Depending on your situation, it is key that you first focus on growing and protecting your wealth for when you retire. How you go about achieving this goal will depend on your age, risk profile, and circumstances. Once you have sufficient funds to cover your needs during retirement you will then be able to consider yourself “financially free”. Once you are “financially free” you can then start looking into more ways to make your wealth work harder for you. 

A small percentage (6% or less) of South Africans can afford to retire. This is a very worrying statistic. 

Consider a strategic asset allocation for your portfolio of investments.  

Combining asset categories with investment returns that pass up and down during distinct market conditions within a portfolio, an investor can assist in the protection against vast losses. Historically, the returns of the three important asset classes i.e., stocks, sukuks, and cash have very seldom moved up and down at the same time. Market events that cause one asset category to do nicely regularly may cause some other asset classes to have bad returns. By diversifying asset categories, you may decrease the chance that you will lose money and your portfolio’s overall investment returns will have a smoother performance. If one asset category’s investment return falls, you’ll be able to counteract your losses in that asset class with potentially better returns in one or more of the other asset categories.

Strategic asset allocation is essential because it has an important effect on whether you will meet your monetary goal. If you don’t embrace enough risk in your portfolio, your investments may also not earn enough returns to meet your goal. For example, if you are saving or investing for a long-term goal, such as retirement, college, or travel, most financial experts agree that you will probably want to encompass at least some shares/stocks or unit trust funds in your portfolio.

Be careful if investing heavily in any individual stock.

One of the most important methods to lessen the potential risks of investing is to diversify your investments. The adage: don’t put all your eggs in one basket. By selecting the proper group of investments inside an asset category, you may be capable of restriction your losses and decreasing the fluctuations of investment returns without sacrificing that much of your potential gain. 

You’ll be exposed to considerable investment risk if you make investments in shares of your employer’s stock or any one specific stock. If that share does poorly or the business goes bankrupt, you’ll possibly lose a lot of money and possibly your employment. 

Consider investing your money in tranches

Through the investment strategy known as “rand cost averaging,” you can protect yourself from the risk of investing all your money at the wrong time. You can do this by following a consistent pattern of adding new money to your investment over a long period. Making regular investments with the same amount of money each time, you will buy more of an investment when its price is low and less of an investment when its price is high.  

Individuals typically make a lump-sum contribution to an individual investment or retirement account either at the end of the calendar or financial year. Using “rand cost averaging” as an investment strategy, especially in a volatile market may be beneficial. 

Take advantage of “free money” from an employer. 

In many companies’ pension or preservation plans, the employer will match some or all your contributions.  If your employer offers some type of a retirement plan and you do not take advantage by contributing enough to get your employer’s maximum match, you are passing up “free money” for your retirement savings. 

Consider rebalancing your portfolio occasionally. 

Rebalancing is bringing your portfolio back to your original asset allocation mix.  By rebalancing, you’ll ensure that your portfolio does not overemphasize one or more asset categories, and you’ll return your portfolio to a comfortable level of risk.

You can rebalance your portfolio based either on the calendar or on your investments.  Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such as every six or twelve months.  The advantage of this method is that the calendar is a reminder of when you should consider rebalancing.  Others recommend rebalancing only when the relative weight of an asset class increases or decreases more than a certain percentage that you’ve identified in advance.  The advantage of this method is that your investments tell you when to rebalance.  In either case, rebalancing tends to work best when done on a relatively infrequent basis.

Rebalancing is returning your portfolio back to your original asset allocation percentages (weighting). Rebalancing ensures that your portfolio does not overexpose the portfolio to one or more asset categories. You are then able to return your portfolio to a satisfactory level of risk.

You can rebalance your portfolio on a normal time interval, such as every six or twelve months. The benefit of this technique is that the calendar is a reminder of when you need to consider rebalancing. It’s at this stage that you can also review the performance and strategy of your investments. You will be able to assess if the portfolio is still in line with your goals, needs, and any changes in your circumstances.  Rebalancing tends to work nicely when executed on a relatively infrequent basis.

If you are retired when rebalancing, you can then also decide to top-up your regular income payments. Most Financial experts recommend enough to cover your needs for at least 6 months (preferably 2 years).