Despite popular belief, investing in the Stockmarket does not have to involve high risk, extortionate commissions and fees, punitive restrictions, specialised knowledge or even much effort on your part. There are many different ways to invest your hard earned money to create wealth. Some routes involve higher risk than others. Depending on your objectives, your aim should be to choose the lowest risk route for your investments. The ideal conditions to make your investments worthwhile would depend on your individual circumstances but there are general conditions that most people expect. Usually these are: 1. High return 2. Minimal Risk 3. Low Maintenance 4. Low Fees and Commissions 5. Easy Access 6. Maximum Flexibility 7. Tax Efficiency Refer to part one for the discussion on High Return, Minimal Risk and Low Maintenance. Fees and Commissions You want to pay as low fees as possible. You cannot avoid paying charges altogether if you are investing in the Stockmarket. However, there are acceptable and unacceptable charges. What you do not want is to pay extortionate fees for a service that you can get elsewhere for far less. Also, a higher charge does not necessarily constitute a better management service. High fees and unnecessary charges can severely constrain the growth of your investment, which will eventually affect its value. Pension funds and endowment policies have demonstrated the exemplar damage that high charges can have on your money. The bulk of commissions and charges on pensions and endowment policies are front-loaded, which means the fees are taken out in the first couple of years before the investment has had a chance to grow. These charges adversely affect the growth of the funds. Some financial advisors argue that their fees may be as little as 3 - 5 % of the overall investment. But what that does is rob your investment of the initial vital growth and reduce the compound growth. Do not underestimate the damage a few per cent charges can do to your money. Fortunately, there are a number of investments that can be set up without initial payments to third parties masquerading as financial advisors. You will still pay a management fee and you can scout the market for reasonably low fees. Easy Access Back in the early nineties, it seemed the fashion for everyone to buy insurance policies, mostly endowments. Why on earth should you continue contributing to a plan that you have no access to when you need it? Insurance policies have maturity dates before which you cannot access your money without incurring punitive penalties. Pension plans can also only be accessed when you retire, which makes them impractical for other things in case you need access to your money before retirement. The aim of investing your money is to generate wealth for your future, which includes important critical times of life and not just for retirement. Understandably, the aim of pension plans is to provide funds for retirement, which is justifiable. What you need are additional investments that you can access at any time. The ability to access your money is crucial, whether you are responding to a crisis or acting on an opportunity. Without easy access to your money, the concept of having wealth sounds meaningless. On the other hand, though, one has to develop the discipline to avoid raiding your investment until it has had a chance to grow, as this will seriously impede its long-term growth. Self-discipline is important and the onus is upon you to determine what constitutes an emergency that requires the use of your Prosperity Account. Look out for Part Three Copyright 2006 Margaret Ntifo |
