Large parts of finance are incomprehensible to the average person. Yet it is precisely the unskilled individual who requires the benefits of money working on their behalf. Knowing the intricacies of how financial systems work means years of training and study. That however should not stop us from taking some steps, which could benefit us in terms of investments. We should not leave it all up to the professionals but we shouldn’t do nothing either.
Why invest at all?
Most of us understand that saving is important. If we can, we put some money aside every month in an account and watch it grow. Savings accounts simply store and allow that money to increase by an incremental amount. Investing, in one sense, can be seen in this same way: money being put somewhere with the aim of retrieving it later, when it’s grown.
However, unlike savings, we do not have the security of the money always being there. As Time Magazine notes:
“Investing… is about making a trade off. You give up security in hopes that over the long run your money will grow faster.”
This is because good investments will make our money work for us. Putting money into stocks for good companies growing in the market could see our initial investment – original stock price – soar. This allows us to sell them at a higher price, assuming we want to sell. So we invest for the same reasons we save – we want a return that’s greater than an initial investment, but faster and greater than savings can produce. A good investment simply means money is working for us, instead of us working for our money.
How to invest
Once we recognise the importance of investment, it’s clear we must act. But how? One financial expert suggests we draw up a budget, start working off our debt then begin calculating our risk. Helena Conradie, CEO of Satrix, tells Moneyweb:
“You need to understand how much risk you can tolerate, what return you are looking for and what your time frame is.”
Quick access to your cash within two years, for example, means we should consider low risk and very liquid – i.e. it can be converted quickly into cash – investment.
For instance, if you need access to your cash in 18 months then you are looking for a low risk, very liquid investment.
This means we should consider any kind of investment to see if they work for us, whether it’s a unit trust investment (which is one of the easiest) or even real estate investment funds. We should investigate which works for us, preferably aided by those with financial knowledge.
Nothing should stop us taking the first steps, even if investments seem daunting. We can only have a financially stable future if we begin acting now.
(Image credit: Petr Kratochvil / Public Domain Pictures)