Whether you want to make a big-money purchase in a couple of years’ time, or you’re building wealth for the day you retire, you’ll need to invest if you’re going to reach your financial goals.
If you want to buy something, you’ll have to save up. That’s the lesson you’ve been taught since you were young, but mere saving will get you only so far. If you’re aiming for a big goal – something like an expensive overseas holiday, your child’s education, or your long-awaited retirement – you’ll have to do more. You’ll have to invest.
Invest where though, and in what? We’ll get to that in a moment. First, it’s important to understand the “why”.
How to set your investment goals
Goal-setting is a crucial part of financial planning because you’re more likely to stay the course if you’re working towards something, as opposed to just saving your money (which will soon feel like you’re just not spending it) or investing for the sake of it. The temptation to dip into your savings will simply be too great if you haven’t earmarked the money for something significant.
Investing is central to that. While nothing is ever 100% certain when it comes to money, investing is a more effective way of building wealth and working towards major life expenses than merely putting your money into a savings account – or, even worse, stashing your spare Randelas under the proverbial mattress. Savings accounts struggle to keep up with inflation over the long term. So, to make sure your money grows, you’ll need to invest it.
The SMART approach is helpful. It keeps your goals “Specific” (for example, buying a house), “Measurable” (you’ll have a set rand amount in mind), “Achievable” (it’s a townhouse, not a castle), “Relevant” (it’s not a frivolous goal), and “Time-bound” (this will help to determine the time horizon of your investment). For example: by 2026, I want R300 000 to put towards a deposit on a house worth R1.8 million in Randburg.
How long do you have before reaching your investment horizon?
Investing is typically a long-term exercise, with the magic of compounding interest really kicking in after a few years. So the “when” in your investment strategy will depend on how patient you are, and how long your goal allows you to wait.
A short-term investment usually has an investment horizon of five to seven years (though even that’s very short in the investment world); a medium-term investment is anything from seven to 15 years; and a long-term investment is 15 years or more.
If you’re currently renting and you want a home of your own, that’s a short-term goal. Sitting with your young baby on your knee, wondering how you’ll pay for their education? That’s a medium-term goal. If you’re 30 and you’re investing towards your retirement, that’s a long-term goal.
By identifying your goals and sorting them into short-, medium- and long-term categories, you’ll tick all those SMART boxes.
Where to invest
The next step is the “how”. It’s always best to speak to a financial adviser about your investment strategy. They will consider your unique circumstances, including your income, expenses and objectives, and will determine the best investment solution for your needs.
They might tell you that your short-term investment goals are best served by a money market investment or a portfolio that’s relatively heavy on bonds (which generally offer high yields), and that your primary goal in the short term is to not lose money.
For a medium-term goal, they might say that you can handle a bit more volatility, and might suggest something like a diversified index fund portfolio. And for a long-term goal, like retirement, their advice might be to go with an aggressive allocation focused on the stock market.
For medium- and long-term investing, shares are an option. By buying and selling stock-market shares, you’ll take control of your own financial destiny. Plus you get to call yourself a shareholder of Google, Amazon, Apple, Coca-Cola, or whichever other businesses you’re investing in. You can buy shares in these companies and more through Shyft Shares, the Shyft app’s new investment capability that allows you to invest in the top 100 U.S. stocks directly from your phone.
Whether you’re working with a financial adviser or not, Shyft Shares is the perfect tool for buying, selling and managing your shares in a huge selection of international listed companies. Some will offer a balance of short-term growth and volatility, while others are better suited to the long haul. Speak to an expert, do your own homework and invest SMARTly, and you’ll be hitting those investment goals before you know it.