Investing in shares is one of the more direct ways to gain exposure to the stock market and to easily diversify your portfolio. However, one needs to know where to invest in order to achieve inflation beating returns over the long term.
Choosing the right investment strategy that aligns with your investment objective and circumstances is critical in planning your investment journey and long-term goals.
Sebastian Pillay, Head of Share Investing at FNB Wealth and Investments says, “despite the volatility in the financial markets, one needs to have a long-term view when investing in shares.
“Moreover, you need to keep up to date with market activity to ensure that you are aware of what might impact your investment portfolio positively or negatively, and for you to look into ways to mitigate the risks and spot the relevant growth opportunities”.
“Most importantly, the consistency of investing regardless of market volatility is still the most effective way to build up a long-term portfolio. There are instances when investing can get scary and complicated, in this instance one needs to research or consult an investment advisor for guidance on how to build a portfolio with a suitable mix of different asset classes to bring about one’s desired financial outcome,” adds Pillay.
Pillay shares some factors that one should consider when investing in shares:
- Risk: Investing comes with its own level of risk therefore, you need to define the level of risk that you are comfortable with and if it fits with your overall investment strategy. This includes researching about the businesses that you would like to invest in. Looking at the reputation of the companies and its profitability gives you a clear indication of the performance prospect of your investment. Good governance controls and procedures are critical to a well-run company and must not be ignored. “If it smells too good to be true it often is”.
- Diversification: Diversifying your portfolio across various financial instruments, industries, and other categories will help you weather market volatility and help reduce your chances of large losses to your investment. By diversifying your portfolio, you can reduce volatility, and improve your chances of reaching your long-term financial goals. Diversification also means holding investments that will react differently to the same market or economic event.
- Staying the Course: You need to define and be clear about your financial goals. Long-term investments tend to have a fair amount of low and high-risk factors (depending on the kind of investment you’re invested in) but have high growth potential to outpace inflation, whereas short-term investments focus on capital preservation over wealth creation. Therefore, understanding the advantages and disadvantages of short and long-term investing will help guide your investment decision on when to use both to save for the various stages in your life.
- Fees: it is important to research about the investment fees you will be charged when investing. Companies charge different fees, which in some instances can have an impact on the performance or the return on your investment. Key fees to be cognisant of are platform or monthly fees, brokerage fees, asset management fees and advice fees.
“Conducting research about where you want to invest and for how long you want to invest for is important in ensuring that you make the right financial decisions. Moreover, it is advisable to consult a certified financial advisor or broker to guide you should you be unsure of the right investment products that aligns with your investment goals,” concludes Pillay.