The best 100 money tips ever! 1- 20

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1. Save 10 cents from every R1 you earn. If you put away at least 10 percent of your income as part of a long-term savings plan, there is a good chance that you will have a financially secure future and be able to attain your financial goals.

2. Put 10 percent of every pay increase towards savings, particularly long-term savings such as a retirement plan. If you are employed and belong to a retirement fund, your contributions will increase automatically in proportion to your pay rises. This will help ensure that you stay well ahead of inflation.

3. Use the "Can I sleep?" judgment when making investments. An investment is too risky if you are going to lie awake at night worrying about it.

4. Diversify your investments. Never invest more than five percent of your assets in a narrow investment (for example, a specialist unit trust fund such as an emerging company one) or in an unregulated investment. Diversifying your investments will ensure you don’t lose everything if one investment bombs out. Many people who invested all their assets in major scams such as Masterbond lost everything, and the same thing can happen in the regulated market if you put all your money into one sector ... just consider how the information technology bubble burst in 2000.

5. Be extremely cautious if the returns promised on an investment exceed what is generally available. If they sound too good to be true, they probably are. It usually means the investment is too ambitious in its claims, too risky, or simply a scam.

6. Know the difference between effective and nominal interest rates. Normally, banks will quote you a nominal interest rate when lending you money, but a higher, effective interest rate when you invest money. The nominal interest rate is the simple rate. The effective rate is calculated by compounding the interest earned or charged.

7. Check whether the interest you are being paid is credited monthly, quarterly or annually. Say you invest R10 000 for 10 years. If you receive interest at 10 percent credited annually, you will get a total return of R25 937. If it is credited monthly, you will receive R27 070.

8. How do you decide whether you should invest directly in shares? Simple. If you haven’t got the time to learn about stock markets, to follow the progress of companies or to track your portfolio, rather invest in mutual funds,unit trust funds and/or life assurance endowment policies that have shares as their underlying investments.

9. If you do invest directly in shares, your two most important considerations should be ensuring that you have a properly diversified selection of shares across the stock market sectors to reduce risk, and regularly rebalancing your portfolio. When a share rises in price, you should consider selling some, but not all, of these shares, so that you make a profit, but your overall portfolio remains proportionally the same as it was when you started. By doing this, you’ll be able to reap further profits if the share price continues to rise.

10. If an investment product is too complicated to understand, avoid it. It does not mean you are stupid. It simply means that the product provider and/or financial adviser are trying to baffle you.

11. Always check the costs of any investment product. Some products are prohibitively expensive. You should be given a breakdown of the costs in three ways: as a percentage of your investment; as a fixed amount; and as the amount by which the costs will reduce your investment at maturity date. Be very careful if the costs are more than six percent at entry and more than two percent a year thereafter.

12. Always check how much commission is being paid to your financial adviser. Some financial products – particularly those offered by so-called linked investment product providers – come with particularly high costs and commissions. High commissions can be a perverse incentive for advisers to mis-sell.

13. A product offering a range of underlying investment product choices, such as a wide collection of mutual funds or unit trust funds, is often not in your best interests and may come at additional cost. Be very cautious if anyone recommends that you invest in a linked investment product with a wide selection of underlying investment choices. Remember that linked investment products come in many forms and are also offered by life assurance companies. The simpler and cheaper solution may be to invest in a properly diversified mutual fund or unit trust fund, such as an asset allocation fund that offers underlying investments in all the main asset classes, such as cash, bonds and shares.

14. Don’t be afraid to negotiate commissions/fees for financial advice. Most financial products allow you to do this. After all, it is your money.

15. If you have a choice, should you pay a fee or commission for financial advice? As a general rule, a fee is better for large amounts of money and a commission for smaller amounts.

16. If you are a true investor, you invest for the long term and you don’t panic when markets fall. If you want to invest for the short term, you should use a bank term deposit or a money market account rather than an investment in the equity markets.

17. It is time in the market and not timing the market that counts. Don’t try to time markets or sectors of markets. Few people have got rich from doing this and most have lost money. The best way to get rich is to take time to select an investment product that has properly diversified underlying investments, and then to stick with it for the long term. Most people make the fundamental error of buying into an investment when it is at the peak of its performance and then selling out when its value has dropped.

18. Always check that an investment product and/or company is registered with the approriate regulatory body in your country before investing. If it is not registered and things go wrong, you will have little recourse, so be extremely wary.

19. Charges on life assurance investments (endowments) are proportionally higher on lower amounts. Check the structure of costs in relation to premiums. You might find that paying just a few pesewa, cent or rand more every month costs you proportionally less. This will give you a better return.

20. Investing on a regular basis is a good strategy in volatile markets. If markets rise, your investment improves in value. If markets fall, you get more for your money, and you’ll benefit when markets go up again. This is known as pesewa/cent/rand-cost averaging.

These tips are courtesy the Personal Finace of South Africa website

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