Grow your money
While saving is important when planning for emergencies, investing wisely is the
secret to wealth creation. This is because investments potentially expose your
money to higher rates of growth than a savings account.
In addition, long-term investments can absorb the shocks of short-term market
fluctuations and have the potential to achieve sustainable growth over time.
When structuring your investment portfolio we encourage you to get advice from an
accredited Old Mutual Financial Adviser.
However, knowledge is power, so read the tips below to equip yourself with enough
information to help you work with your adviser in structuring your portfolio.
Remember, there is no such thing as a “get rich quick scheme” and wealth is
something that is created through wise investments and a commitment to a good
financial plan.
Financial Growth
When you buy an investment product from a company like Old Mutual our job is to
make your money grow. Your job is to choose the investments that suit you, and
to stick with them. This is because, while taking a long-term view requires
patience, your investment will not only grow each year, but will benefit from
compound interest.
This means that you not only earn interest on your initial investment, but the
interest gets added each month or year to the initial amount, and you earn
interest on that as well.
Savings & Interest
If you saved N$1 000.00 every year for 10 years, and kept your savings under your
mattress, your money wouldn’t earn any interest. After 10 years it would be
worth:
N$1000.00 x 10 years = N$10000.00
If you had saved N$1 000 every year in an investment that earned 10% interest per
year, your money would be worth more than R17 500 after 10 years.
This is because the interest is compounded (you earned interest on your
interest), causing the investment to grow much faster.
Threats to Financial Growth
Inflation can threaten the growth of your investments. That is why you must look
at “real growth” – this is the growth of your investment less the current
inflation rate.
It is a measure of how much the prices of goods and services fluctuate from year
to year. It is calculated by taking an average shopping basket of goods and
services that most people would use, such as:
- Basic groceries
- Rent
- Transport
- Electricity
and comparing it to the total cost of the basket to what it cost the year before.
From this, the average percentage increase for the year is calculated. This is
the inflation rate or consumer price index (CPI). The government publishes this
monthly.
This means the buying power of your money decreases by the inflation rate. If
inflation is 10%, a basket of good that cost you N$100 last year will cost you
N$110 this year.
So when you are calculating the value of your investment, make sure you take
inflation into account. An inflation rate of 5% can cut the real value of your
investment by half in just over 10 years.
Get the Best Advice
When it comes to investing there are thousands of products available on the
market that makes it difficult to choose which one is best for you.
To help you make the right choice we recommend that you make use of the services
of a financial adviser. But never just blindly accept advice. It is your money
and your future. Make sure you know who you are dealing with. Ensure you are
aware of the commission as well as the fees and charges that you will pay.
Protect Your Assets
You need to consider insurance and risk cover to protect your assets. Certain
risk products will help you honour your financial commitments in the case of
everyday emergencies or if something happens to temporarily or permanently
affect your earning ability.
When you take out an insurance policy read and understand the entire policy –
even the fine print. Make sure you meet any conditions you are expected to
fulfill, such as medical tests, installing burglar bars on your house, or always
parking your car in a locked garage.
If you don’t meet their conditions they could refuse your claim, and you would
end up having no cover.
Types of insurance include:
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