An investment portfolio is one of the best ways to grow your money over the long term. A balanced portfolio will allow you to manage risk as you create real wealth to see you through your retirement and beyond, but before you start investing there are a few important points to take into consideration:
Term of Investment (Investment Horizon)
Most investments last for a minimum of 3 years, while retirement funds and trusts may hold shares for decades. Knowing how long your investment package requires you to contribute funds will allow you to plan your finances, and the sooner you start investing the better.
Growth and Inflation
Ideally, your investment should grow enough each year to keep pace with inflation and see an annual increase in the value of your capital. A return that is less than the inflation rate means that your money will effectively decrease in value each year as its purchasing power decreases.
Your Income Needs
If you need your investment to provide you with an income, which will reduce the amount of capital available for re-investment and limit the positive impact of compound interest over time, you’ll need to budget for this by investing a lump sum and ensuring that your investment is sufficient to provide you with an income when you retire.
Liquidity Issues
Besides your investment, you will need an emergency fund to provide ready cash in case of an emergency or cash-flow problem. This should be in place before you start to invest in equities.
Taxation
Because your investment will be taxed differently depending on how it is structured, you’ll need to decide what type of investment suits you best – I will provide you with the background you need during our planning sessions. Tax rebates and estate planning are also important with regard to investments, in order to maximise your capital growth and minimise Capital Gains and other taxes.
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