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<p><strong>By: Kondi Nkosi, South Africa Country Head at global asset manager, Schroders</strong></p>

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<p>The global outbreak of Covid-19 has taught us many things, but one of the biggest lessons learnt is the importance of preparing and saving for the future. For some people this means putting money away on a regular basis into an interest-paying savings accounts; for others it means investing in the financial markets. If you’re new to the investing world, you might find all the choice quite daunting. Below are six steps to on how to start investing.</p>

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<h3><strong>Step one - decide how much you can invest </strong></h3>

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<p>If you don’t have a lump sum (say from an inheritance), as is likely the case for most South Africans, then you need to work out how much you can afford to invest. You must look carefully at your overall financial picture.</p>

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<p>You might have debts that should be paid down first. You might be better off paying more into your company pension, which is a way of investing in itself. It is also advisable to have a cash buffer in an accessible savings account – most financial advisers suggest a minimum of three months’ salary.</p>

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<p>Taking all this into account, if you decide that you have leftover cash each month that you can lock away for the long term – great, go to step 2.</p>

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<h3><strong>Step two</strong> – <strong>decide how much risk you want to take and how long you want to be invested for</strong></h3>

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<p>The two things are inextricably linked – because the longer you can lock away your funds, the more risk you can sensibly take in the search for higher returns. If you do not have to get at your money for 20 years, then shares become more attractive.</p>

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<p>But if you might need it in five years, then a larger chunk of your portfolio might be devoted to other assets like government bonds, which are deemed more stable than company shares. However the volatility of the asset varies depending on the specific instrument you invest in or purchase.</p>

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<p>With all investments, the value and the income from them may go down as well as up, and as an investor you may not get back the amounts you originally invested. There are online tools that can help you assess your attitude to risk. And there is also a new and growing breed of investing platforms that offer basic financial advice and tailored portfolios by asking you a series of questions. This is called “robo-advice” and ranges from the very basic to quite sophisticated.</p>

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<h3><strong>Step three – decide how you are going to invest</strong></h3>

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<p>As I’ve mentioned, it may be that the best thing for you to do is to increase your company pension contributions rather than set up a separate investing account. There are tax advantages to pension saving, and employer contributions could mean that this is the obvious step for you. But note – your cash is then locked away until you are allowed to access your pension pot at the retirement age stated in the rules of your pension fund or employment contract. If you are not sure then seek financial advice. But even if this is the step you do take, then you are still investing – and you still have some control over what you invest in.</p>

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<p>You can contact your company pension provider and find out what funds your savings are being invested in. If your benefit package allows for member level investment choice (some do, some don't), you can often switch it around to other funds if you wish and adjust where future contributions go – subject to the rules of the pension fund.</p>

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<p>If you decide to invest outside your pension, then you may wish to consider step four…</p>

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<h3><strong>Step four</strong> – <strong>open a Tax Free Savings Account or a normal unit trust account without a tax wrapper</strong></h3>

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<p>A Tax Free Savings Account is just an account that you can hold your investments in that means you do not pay tax on the income or the profits that you earn. The current limit is a maximum investment of R36 000 per tax year and R500 000 over your lifetime that can be invested tax free. There are many providers out there that offer these accounts.</p>

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<p>They are relatively simple to open and give you easy access to your money with no tax payable. But they all charge fees (although they are not permitted to charge performance fees) in one way or another and your choice of who to go with will be determined by how you wish to start investing.</p>

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<p>Do you have a lump sum? Or are you putting away a chunk of your salary each month?</p>

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<p>Or just filtering away a few rands each month? Do you want to invest in a lot of different funds or just a few? And how frequently do you wish to trade or switch around your money? For instance, some platforms charge a flat fee and some charge for each transaction. Whatever your choice, your next step is the tricky one…</p>

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<h3><strong>Step five</strong> – <strong>choose your investments</strong></h3>

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<p>Much of this will depend on your answers to step two. Unit trusts offer an easy way to diversify for many beginner investors.</p>

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<p>So-called ”actively managed” unit trusts are managed by professional fund managers and with the aim of  delivering good returns back to the investors.</p>

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<p>You could choose a mixed or balanced fund that offers immediate diversification across shares, government bonds, property and other asset classes. Those assets could also be based in or outside South Africa, providing even more diversification.  Or you could choose a number of funds, each specialising in one asset class.</p>

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<p>Some equity funds are quite defensive – holding secure stocks that aim to protect against volatile swings in the market – while some are more adventurous, focusing on high-growth sectors and markets that carry more risk.</p>

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<p>Some equity funds focus on income from dividends and some focus on the capital growth of the companies they are invested in. Some funds focus on geographical regions – like risky emerging markets or less risky UK and US equities. Remember as with all investments your originally invested capital is exposed to risk.</p>

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<p>Investing in individual company shares is potentially rewarding but also quite risky. How you make your choice depends on how confident you are doing your own research. There is a lot of information out there online – just choose reputable sources. You might decide that it’s all too much and you have to pay for financial advice. Or you might go the middle way and allow one of the increasingly sophisticated robo-advisers out there to tailor a portfolio to your risk profile and goals. At all points, watch out for the fees charged – whether it’s by the investing platform or by the fund itself.</p>

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<h3><strong>Step six</strong> – <strong>monitor your investments</strong></h3>

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<p>It is generally advised that beginner investors should not trade too often – i.e. decide where you want to be invested and stick to it. But you should always monitor your portfolio as sometimes some tinkering might be necessary. If you are not looking to access your money for a very long time – like 15 to 30 years – then even a stock market crash is not necessarily the end of the world: in fact if you are investing regular amounts each month it will mean that you are picking up shares on the cheap, that in 15 years’ time could be worth a lot more.</p>

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<p>Some geo-political and economic shifts, however, might require that you adjust the proportions in your portfolio. Also, as you get older, or closer to the point where you want to access your pot, you should be moving funds out of riskier assets and into more stable ones.</p>

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