Beginners thinking of investing should steer away from offshore investments and stock investing when first starting out in the world of investments. A good start would be to invest in a life policy, a retirement annuity or unit trusts. If your finances permit at a later stage, invest in all three at the same time. You should get yourself a house (or dwelling) as soon as possible after school or as soon as you have a deposit (or collateral) and can afford the monthly instalments.
The best investment a beginner can make is to repay the debt owed on a house bond and a very wise decision when making those repayments is to pay more than the minimum monthly instalment. This does not mean that you should not first invest in a life policy and an annuity. It means that you can postpone investing in unit trusts (for example) until you have repaid your bond. The main reason is that when you invest in your housing bond you receive an interest-free rate of return that is equal to the rate on your bond (e.g. 17%). This rate is much higher than the rate of return on most unit trusts. It is also a guaranteed return, whereas the return on other investments is uncertain. It is also a tax free investment.
When starting out in the world of investments there are many pitfalls that beginner’s fall into, most people fall into one or more of the following investment pitfalls:
- They compare the return on different investments, instead of looking at the reason why they invest – their investment goal.
- They do not understand the importance of a life policy for their financial future. A life policy could satisfy 90% of all your financial needs and goals.
- They underestimate the negative influence of inflation on their investments and retirement income.
- They do not know the different investment criteria for comparing and choosing different investments.
- They do not save or invest, but gamble with their money.
- They do not know their own financial situation.
- They choose the wrong broker.
- They do not take the different needs of different life phases into account.
- They invest in a product because other people do so.
- They invest because they are afraid or very greedy (hungry for lots of money).
- They change their investments all the time because they read something in a newspaper or magazine, or hear something from a friend.
If you are just starting out in the world of investments then be sure you do not fall into any of the above points and keep an eye out here for Investing For Beginners Part 2 in the near future.