Changing from a saver to an investor, a concise guide for young wealth builders

– Paul Damant, CFP (Director, Cornerstone Asset Management and Managing Director, Cornerstone Financial Services Group of Companies)

Isn’t it amazing how much a person’s life changes between the ages of 25 and 35? Sometimes it’s hard to look back and imagine yourself as a graduate who barely knew anything about anything. The world is a youth obsessed place and many people might loath the idea of turning 30, but trust those who already made the trip – your thirties are the best years of your life.

There are many reasons for this: you’re more confident, your family and career life are taking off, but the most significant benefit of your thirties is that, as a working professional for nearly a decade, your wealth is starting to develop.

For many, this will be in the form of current assets in a commercial savings account or perhaps fixed assets like property. Some may even have invested directly into unit trusts. Even though you might have been saving religiously, remember that building wealth requires more than simply saving. Now is the time to take the next step in your financial journey, to evolve from a saver into an investor.

Before you get too excited, being an investor can be a very bumpy road with many pitfalls to watch out for and it’s vital to have a qualified and experienced asset manager by your side to help you avoid the cracks in the road. Click here to contact Cornerstone Asset Management and learn how we can assist you in taking your wealth management to the next level.

Because we value our clients’ financial wellbeing above all else, we have put together a checklist of all the most important things to watch out for when you start investing your hard-earned savings:

Pay attention to the cost of your investment

It’s vital to understand the fine balance between the costs of investing and the return on investment. For example, if your administration and management fees (Effective Annual Charges – EAC) on your investment are 2,5% and your growth is 2%, you’re losing money instead of building wealth. Be wary of brokers, agents or advisors who peddle costly and traditional products with very high administration fees. Always ask to see the EAC’s. These are normally tucked safely away on page 11 of the quote. Anything over 3% p.a. in the first year…run!

Remember, the ultimate goal is to grow your own wealth and a good asset manager will always put your interest first, regardless of how it effects his fees.

Don’t mistake investing for gambling

Gambling is the act of chancing large amounts of money and hoping you will get a high return. There is no skill, expertise or research involved. It merely relies on chance. Lots of people tend to think that investing is something that anyone can do, and that investing is just a fancy form of gambling.

Obviously, this is not true. A qualified investment advisor relies heavily on his/her years of study, experience and knowledge. Furthermore, in addition to being registered financial services providers, all investment managers must carry special licenses to manage investments. Make sure that your asset manager is properly licensed and qualified, otherwise you might be better served taking a trip to the casino.

Develop a proper investment policy statement (IPS).

Before you start investing, ensure that your chosen investment professional assists you in developing your investment policy statement. An investment policy statement (IPS) is a document drafted between an investment advisor and an investor that outlines the general rules for the investment advisor. The IPS sets out (amongst other things) your investment goals and objectives, develops and sets your risk profile, documents your investment time horizon, tax considerations, cash flow considerations etc, and describes the strategies that the investment advisor should employ to meet these objectives.

Your stated investment time horizon plays a massive role in the way you invest. It also impacts the management of risk and asset class diversification.

Another important aspect of investing is receiving regular portfolio performance updates and having regular portfolio reviews. Regular reviews are non-negotiable as it gives you the opportunity to evaluate your investment’s performance and adapt your IPS where necessary. If you have an investment manager but have not had a review in the last few years, you should consider a change as your investment might be at risk.

Taking the leap from being a saver to an investor is an exhilarating time in your life, but as with many important and life changing events, it could go very wrong if you don’t protect yourself.

Cornerstone Asset Management has more than two decades of investment and asset management experience and has advised and consulted with investment clients through some very turbulent financial times. Make the right investor’s choice and contact us today to find out more about our bespoke wealth management services.

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