18 February 2022
By Justin Bgoni
Investing and financial freedom means something different to everyone; for example being able to retire at 50, setting up your own business, buying a car or a house. To achieve one’s goals, it is important to consider how much you will need, and then think about how you can invest your money to help you achieve these goals.
- Investing for capital growth
Capital growth also referred to as capital appreciation occurs when the value of one’s investment increases. Putting it into context, if an investor buys shares for $100 per share, and the market price rises to $150, there is a capital appreciation of $50 per share. The capital appreciation would result in a capital gain of $50 per share in case the investor decides to sell the shares. Most people invest for capital growth to build their wealth over time and protect themselves against inflation.
- Investing for income
Investors can seek an income stream from their investments in order to supplement their primary source of income.
Guidelines to Investors
Before embarking on your investment journey, it is important for an investor to analyze their investment objectives, income sources, constraints and risk tolerance. Stock market investment is risky in that you could lose all the invested capital or make great returns.
An Investment strategy
A strategy is simply a set of rules or guidelines that are adopted consistently over time. Having a strategy does not prevent you from having losses. A strategy may assist in investment success by providing benefits which can include:
Diversification simply means investing in more than one security or more than one asset class.
One of the most famous sayings about successful investing is ‘don’t put all your eggs in one basket’. The capital market moves in cycles. Diversification serves to protect overall investment returns. That is, while one element of the portfolio is performing poorly, some other investment may be doing well.
b) An objective and consistent approach
Investors form views about where they think the market is heading or about the value of individual shares. Whilst some allow their emotions to override their rational analysis. Developing a strategy that incorporates adequate research, and monitoring elements will go a long way to providing a sound investment portfolio.
c) Choose the right investments
An investor should be able to analyze each available product and make a determination as to its investment potential. If you are unable to analyze or make an investment selection, it is recommended that you seek assistance from your stockbroker or other professional financial advisors.
d) Be long term minded
Although short term gains and losses may be encountered, your investment decisions should be more long-term focused. Being long-term minded does not mean keeping a blind eye to profitable short term opportunities that may not be repeated or ignoring risk warning parameters that may hamper the investment’s long-term appeal.
Information provided in this article is for educational purposes and does not constitute financial product advice. You should obtain independent advice from a Registered Stockbroker or Financial Advisor before making any financial decisions.