Investing wisely makes sense, pays off in the end

MOST of us are less conscientious about our financial affairs than we should be.

For many of us the question whether we have saved or invested enough usually only crops up when we are confronted by a major life event – be it buying our first car or house, our wedding day, a big birthday, a divorce, a family emergency, an illness or even death.

• Saving and investing are not the same thing:

Saving for a new car is very different from investing to achieve a long-term goal, like retirement. Saving involves putting money aside, typically into a money market fund, fixed deposit account or even just your bank account.

Savings accounts and other low-risk options are a great choice for an emergency fund and short-term goals. However, they are not the best choice for goals with a longer timeframe. That is because the return they provide is relatively low, usually less than the rate of inflation. Investing, on the other hand, can help you to not only create wealth.

It is simply the act of putting your money in a financial vehicle with the goal of making a return, so you are basically making your money work for you. Successful investing requires both commitment and a plan.

• Work with a financial roadmap and devise a financial plan:

Working with a qualified and trusted financial adviser is critical when it comes to planning your financial affairs and particularly when it comes to investing. There is no guarantee that you will make money from your investments.

But if you and your intermediary develop a plan based on your individual needs and risk profile and follow through with it, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

Then list your goals. Do you want a car, a university education for your children, or a comfortable retirement? Once you know what you want, when you want it, and how much it costs, you and your adviser can figure out how much you'll need to save and/or invest.

• Define your investment time-frame and invest for the long term:

The next thing you need to know is how long you want to invest. Your investment time-frame provides a framework for deciding which investments to choose. Generally the longer your investment time-frame is, the more you should be exposed to riskier assets like property and equities.

• You need to understand the risks involved

How much risk are you willing to take? Your ability to take on risk is key to finding out what works for you. When investing, the higher the potential return, the higher the risk. There's no such thing as a high return, risk-free investment.

If you want higher returns, you have to be prepared to accept the risks that go along with them. Your tolerance for risk may depend on what is more important to you - keeping your money safe or seeking higher growth – and when you need the money. - Leigh Köhler