Are you making your money grow?

Investment (money) growth is one of the important aspects for any investor..... many times we are clouded by emotion when it comes to investing our hard-earned monies and we forget to ensure that what we invest grows - and grows proportionate to the risk involved - High risk = High return expectations whilst Low risk = lower expected returns.

Growth is very relevant to our personal risk profile (appetite for risk). Make sure that your investment advisor is doing this exercise with you so that the fund and investment choices are in line with your risk appetite and return expectations. Many times investors expectations are not met as they have either been invested in the incorrect portfolios compared to their risk profile OR they have been invested in the correct risk portfolios but it does not match their return expectations.

Investing in cash is going to make your money grow backwards as tax and inflation eat away at your interest and capital. If you earn 5% on a money market investment then SARS will take between 30-40% of the interest earned which will effectively leave you with between 3-3.5% return - now take annual inflation off that and you are effectively left with a negative return of between -2.5% and -3.0%.

In order to ensure your money grows to your advantage there are a few things you need to consider :

• Tax - Income and Capital Gains Tax
• Liquidity
• Inflation
• Your appetite for risk
• Effective rate of return after costs

In order to ensure that you earn a decent growth on your investments you would need to look at earning at least 6-7% above inflation = 12-13% - in addition you also need to ensure that if your marginal tax rate is in excess of 30% that you invest in a tax effective vehicle like an endowment. High risk investments which are subject to Capital Gains Tax and also erode the good returns earned so be careful how you invest and that you find out all the tax implications before you invest. Inflation is around 6% so any investment giving you return below this is not going to grow your monies. Liquidity will affect potential returns - the longer you invest the higher the potential for higher returns.Be aware of your risk appetite and adjust it where required in order to unlock higher returns and reduce tax obligations. Costs may have an affect on your nett returns - make sure that your financial/investment advisor has factored this into your investment plan.

If you have not spoken to your advisor in the last year regarding your investment portfolio then now would be the time to make contact to do your annual review and make sure that all is on track. If you require assistance in this regard then feel free to contact me via email : [email protected]

Yours in finance

Kharmen