This is our first guest blog post! We are excited to have Ryan Welsh CA(SA) as our guest author this week – his piece below relates to this week’s theme on the Absolute Basics of Investing. Enjoy!
Investing is many things. For a reader who may feel unfamiliar (or utterly nervous) around the topic, let me assure you of your warm and friendly acquaintance in the below examples:
– Your parents or guardians invested in ensuring your healthy upbringing;
– Your teachers and lecturers invested in developing your intellect;
– You have invested in fostering bonds between yourself and your friends and partners; and
– Your employers have invested in you and you have invested in their business and your career, culminating in an honest contribution to society at large.
Where the reader may be at a loss is investing as far as is applies to their personal finances. This is of no surprise. Considering the sophistication of economies and it being in the nature of business to specialise through the division of labour, as observed by the venerable Adam Smith, it is quite possible that the path the reader has opted for has nothing to do with finance, investments or even numbers at all. It is natural to feel uncomfortable around the unfamiliar.
Be that as it may, the characteristics of investing are quite transient, and comfort should be taken in that the intuition developed from your familiarity with the concept carries over to its application within the financial domain.
Choice:
The mere fact being that the reader is considering investing financially is encouraging, for what is financial investing but a choice.
It is by no means an easy choice.
Being in a position of contemplating financial investment implies that one’s necessities in the short term are for the most part taken care of, resulting in a surplus of resources. Bills have been settled; debts have been paid. Or perhaps the reader has recognised the need of having to financially safeguard against future uncertainties and has forced upon him or herself certain austerity measures.
Regardless of how the surplus may have arisen, the reader now finds at their disposal funds available. Funds which could be used for all the luxuries and amenities the world has to offer, and there are plenty. The temptation can be and often is immense.
Financial investment is therefore a choice between immediate consumption and deferred gratification.
A means to an end:
Once inclination develops into intention, intention needs to lead to action. But what action should first be taken? I was always told growing up that if I failed to plan, I planned to fail; a mantra that has proven its validity several times over in my lifetime.
Therefore, before any action is taken it is best to plan your journey towards your investment goals, for what is investing but a means to an end?
The End:
One of your first steps in planning your journey is to know what you are travelling towards and, more importantly, why. This may seem as an odd point to raise, simply because the “why” is often why you decided to invest in the first place.
– New sneakers
– a trip to your dream vacation spot
– a greater degree of financial independence
The “why” may seem like the part of the financial journey that deserves little to no attention. However, it is quite the opposite. One truth that has revealed itself to me through my experiences is that if your goal, your end, your “why” is strong enough, then that strength is capable of sustaining you through whatever journey it may take to reach it.
If after serious contemplation you come to the conclusion that the goal is of significant importance to you, then the price you pay in order to attain it, the sacrifice of the instant gratification foregone, may just be considered a bargain.
If the appeal of the goal is insufficient to justify the sacrifice, then you may need to re-evaluate your priorities. Be warned, however. There is a difference between being unable to justify the sacrifice before beginning the journey and succumbing to the temptation associated with the sacrifice during the journey. The former as a consequence of a questionable goal, the latter is a consequence of being human.
When it comes to pursuing a particular end, it isn’t self-serving to play the martyr. There is no need to endure the full extent of the sacrifice made in the quest for your ends. Having a strong goal will help you play the game harder, but you need to play the game smarter as well.
The means:
If your goal is that strong driver you require, but you still want to play the game smarter, consider the following:
put distance between you and the money:
How many us feel the full extent of the deductions made on our monthly pay check?
– UIF
– Medical Aid
– Employee’s tax
All of these come off most, if not all of our pay checks, but we only truly concern ourselves with the funds that get deposited in our cheque account at the end of the month. The old adage “Out of sight out of mind” rings true. Once your salary arrives in your cheque account, it is a lot harder to part with than if you had never seen it in the first place.
An alternative would be to have your employer part with it on your behalf instead and place the funds into a designated investment vehicle. If that doesn’t suit you, set up a debit order of your own to a savings account, ensuring a certain portion of your salary is invested before you can utter the words “pay day”. Make your choice of saving non-optional and the temptation to spend it will be somewhat alleviated.
put Time between you and the money:
There are many investment options which require you to wait a variety of notice periods before you can have access to your money. The power of temptation and the waning of willpower comes and goes in waves, so let your investment vehicle give you time to remind yourself why you are saving in the first place..
Wealth management:
If one takes stock of what has been said up to this point, they would realise that focus has been predominantly placed on managing the investor; what has been said regarding the management of wealth thus far has been, in fact, part of managing the investor.
It is worth repeating, contemporary civilization is highly specialised, the consequences of which is that wealth management is an entire discipline in and of itself. It would be a disservice to the branch of knowledge and highly presumptuous of anyone to assume it could be effectively distilled into a brief think piece.
Nevertheless, there does seem to be a common misconception held that is certainly worth addressing: It does not require complex financial instruments in order to achieve your financial goals; Simple investing can be successful investing.
Complex financial instruments such as options, swaps, contract for differences and other such derivative instruments have their place within the financial ecosystem ;a very sophisticated place, with the hedge fund brokers and the financial asset managers, who have spent careers learning and understanding the use cases of these vehicles.
But as a layman investor looking to save for a deposit on a first home, they are wholly unnecessary, not to mention largely inaccessible. The mention of such investments certainly shouldn’t intimidate any reader into not investing at all; simple investing might not always trump complex investing, but simple investing almost always trumps no investing.
Similarly, regardless of whether you are the most highly skilled broker applying your trade at Goldman Sachs or a medical doctor that knows an awful lot about the human body, but not so much about investing, you should have a good appreciation for what you are investing in, or at least a thorough comprehension of the risk associated with the investment.
But that is for my financial adviser to contemplate, is it not? Wrong! The professional, as in most cases, is there to provide an opinion. An educated opinion, granted, but still only an opinion. The risk and rewards of the investment decision lie squarely on the shoulders of the investor, and as such it goes without saying that the investor should always be aware of where their money is and why.
privilege:
Lastly, what is investment but a privilege.
But what a privilege it is to invest!
The privilege of investing is often overlooked, because who would consider something so burdensome to be a privilege? Investing is not only difficult because it’s difficult to follow through with. Investing is also difficult because it results in focus being placed on the future and having to contemplate uncertainties and unforeseen calamities; going down the rabbit hole of considering one’s future financial wellbeing can be deep, dark and utterly daunting.
It is easy to become overwhelmed with an abundance of choice, frozen by the analysis of alternatives, terrified of opportunity cost. All these feelings are understandably amplified if investing isn’t your area of expertise and falls outside of your comfort zone. In spite of the above stresses, it is worth remembering that it is a privilege. In fact, being grateful for the opportunity to invest is the first step to mitigating the anxiety that all too often accompanies you down the path of financial success.
If investing is broadly about striving towards a happy and healthy future, gratitude and appreciation for one’s present opportunity to strive towards that future lends itself to a happy and healthy present.
Good luck with your financial endeavours, may they promote and compliment life’s endless adventures.
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