Hey readers, below is an email I received requesting financial advice. I posed the question to Frank Magwegwe who gave these pearls of wisdom.
My name is Gilbert.
I would like to know more about the investment portfolios that one could try a hand on for a start.
Kindly advice as to how I can jump into the moving wagon. I would like to honestly state that I have had bad experience of pyramid schemes in the past and I do not want to fall victim of circumstances again. Advice Vuyo.
Vuyo, an industry colleague has asked me to respond to your request for advice.
Firstly, I am sorry to learn that you have been a victim of pyramid schemes. I am busy writing a blog post on pyramid schemes that I will put on frankmagwegwe.com next week in time of January financial pressures.
Secondly, I am glad that at this time of the year, you are thinking about investing.
Third, it important to understand the difference between investing and saving before “jumping on the investing wagon”
Saving is about putting money aside for future use by deferring consumption. The main goal of saving is capital preservation. That is, one doesn’t want to lose the money they are saving. Hence, saving is usually done in safe saving vehicles like savings accounts, money market accounts/portfolios, savings bonds or even access portion of mortgage loan.
Investing on the other hand has a main purpose of capital growth. That is, taking some risks to ensure that the money grows over time. The typical portfolios for investing money have high exposure to shares since over time; shares give the highest investment returns. Examples of these portfolios are equity or balanced; 1) unit trusts, 2) exchange traded funds or direct shares.
Fourth, as a certified financial planner, I firmly believe that after understanding the differences between saving and investing (see blog post on this on frankmagwegwe.com for more details), one must understand the financial planning pyramid. This pyramid’s base is cash flow management (budgeting, income, expenses, emergency funds, etc.) This is followed by the insurance layer (life, health, short term, funeral, etc.) After the insurance layer, there is savings and then investment layers.
So, lastly, what I am saying is that, whilst investing is exciting, without a strong base of cash flow management and insurance, the investing doesn’t have a strong foundation.
I have given you general advice since specific advice requires me to understand your circumstances in relation to the financial planning pyramid.
I trust this helps. You are welcome to ask further questions.
A book that touches on some of the concepts that I shared above is Maya on Money by City Press Money editor, Maya Fisher – French. I strongly recommend it. I think I have reviewed it so please check book reviews on frankmagwegwe.com. I keep a few copies, so happy to give you one.
Feel free to make contact with us on Twitter @IamVuyoJoy or send an email to firstname.lastname@example.org
~Save to invest & trade!~