Five investment myths that are keeping you from achieving your financial goals

With an increasing number of reports suggesting that a third wave will make landfall in the next few months, the unprecedented uncertainty brought about by the COVID-19 pandemic shows us to always expect the unexpected and highlights the importance of planning for all eventualities. 

As a result, the pandemic has put many South African households on the back foot. According to the Old Mutual Savings and Investment Monitor COVID-19 Special report, 52% of South African earner’s are financially responsible for adult dependents other than a spouse – a number that’s up nearly 10% from 43% in 2019. 

Those who count among the ‘sandwich generation’, that is supporting growing children on the one hand, and ageing parents and/or adult dependents on the other has increased from 34% in 2019 to 42% in 2020.

Despite the challenges created by the COVID-19 pandemic, there is a silver lining. The drop-in interest rates — which the South African Reserve Bank kept unchanged in March — will help many more South Africans pay off their debt quicker while the accumulated savings from working remotely is offering households an opportunity to save money – and importantly invest for their future. 

The difference between saving and investing may sound like a misnomer, but there is a very important distinction. While saving is putting away cash to spend later, investing requires us to use this cash to buy assets that increase in value and generates an income over the long term.

Each of us has dreams and aspirations as unique as our personalities. No dream is too big or too small: from starting an emergency fund to owning our dream home or sending our children to schools and universities of their choice.  Growing our wealth by investing our money brings us one step closer to achieving our dreams and goals 

But for many, the mere thought of investing can feel overwhelming. For many South Africans, the idea conjures up images of the stock market, frightening financial indicators and traders frantically buying and selling stocks by yelling and waving their arms above their heads. Investing doesn’t have to be
overwhelming though. There are a number of stock advisor websites that you can consult to make more informed decisions.

Others may delay investing until they understand every single aspect of the stock market, for example, before they take the plunge. However, waiting to invest because you want to know everything and anything about investing is also a mistake. 

Rather than allowing fear to stop you from taking the leap, lean into the promise of a better 2021 and remember that even the most experienced investors never stop learning. 

To help you on your journey, let us look at some of the common myths around investing.

Myth 1: You need a lot of money to start investing

Truth: Whether you have R500 or R50 000 to invest, time  — and not money necessarily — is the investor’s best friend. No matter the amount of money you have, the sooner you invest the better as you will benefit from the power of compound interest. You can start investing in a unit trust with as little as R500 per month. You then have the option of gradually increasing your contributions once you are in a position to do so.

Myth 2: Your money is ‘fixed’ once you put it into a unit trust

Truth: Unit trusts are great vehicles for first-time investors as they are easy and flexible to use. They are liquid investments, which means that you have access to funds when you need it. You can sell your unit trusts if you need your cash back, you don’t need to give a long notice period and you can have your money within days. This is an advantage if you have an emergency.

Myth 3: Unit trusts should be used only for investing for your retirement

Truth: Investing is not just for your retirement — it can also be used for starting your own business, paying for your dream wedding and honeymoon, or ensuring you have an emergency fund in times of need. 

Old Mutual Unit Trusts has identified five core investor needs and used these to handpick ten funds to best cater to the needs of ordinary South Africans: 

1. Home and security; 
2. Freedom and adventure; 
3. Education and ambition; 
4. Retirement independence; and 
5. A big goal. 

The ten funds are what we call the Investment Series, which is a core range of investment funds each varying in risk exposure and expected returns, thus allowing you to select the fund most suited to your personal saving goals. Basically, just about anything that requires a lump sum of money. Investing is the best way to secure and grow your money.

Myth 4: Investing is risky

Truth:  The word risk in the conventional sense tends to send shivers down our spine. But the meaning of the term risk in the investment world means something a little different. Risk is another word for the ‘ups and downs in the market’. The irony is that avoiding investment risk, for example taking your money out of the stock market during bad times, will hurt your returns over the long term. 

To find a more comfortable middle ground, a unit trust spreads your money — and therefore your risk — across many assets, including the stock market. The investment term for this is ‘diversification’, which allows you to own assets that are more volatile but grow in value over the long term. 

In other words, risk should be embraced, but also managed. Big rewards come from investing over the long-term (five years plus) and letting compound growth work for you.

Myth 5: There are too many options to be able to make an informed choice

Truth: With over a thousand unit trusts on the market, first-time investors tend to feel overwhelmed by the investment options available and don’t know where to start. However, financial planners and unit trust providers such as Old Mutual Unit Trusts can make the selection process easier for you. 

For more information on the Old Mutual Investment Series, visit oldmutualinvest.com