admingrower in Murambinda Growth Point, the tenant in Glen View 1 and the Advanced Level student in high school.
It is a subject that captures almost everyone across the globe, from the 65-year-old who is trying to get something out of the pension fund to a young vibrant 25-year-old who is trying to ensure that the future is as comfortable as possible.
With all the interest and enthusiasm that all these people show in the area of investment, it is a subject that I have discovered people act on impulsive information which is either partly true or irrelevant to what they intent to achieve.
A very small proportion of investors and potential investors take time to study and understand the areas of investment they want to invest in.
People lack these fundamental principles before they engage in investments.
This incomplete information has led to a lot of frustrations among potential investors around the globe.
Investments and their underlying principles operate in similar ways in areas of health, sport, business, and education among other things.
My focus will be on the underlying principles of anything with a monetary equivalent such as property and unit trusts.
I, however, am not going to delve into the specifics on the management of such portfolios but am going to attend to fundamentals of investments which when carefully studied, understood and absorbed can transform an investor’s life forever.
Lack of vision
I used to think that people fail because they lack in planning, however, it is actually a lack of vision that causes one not to have a plan, which is specific and concise.
When people go to consultants, brokers or any other specialised personnel to seek advice on investment, they usually do not have anything specific that they want to achieve say in the next 10, 15 or 20 years.
People invest for the sake of investing or usually because they have some extra cash that they will just put aside for a moment.
It is amazing how people pay attention to an event such as a wedding ceremony or a holiday trip which last only a few hours or days respectively but take investment information and decision for granted and act on information that they receive in, say, 30 minutes.
Investing in time
In this modern world of fast jets, fast cars touch technology and the Internet, everything including information seems to be so fast and easy to get to an extent that it seems illogical for someone to tell you to be patient and invest in time.
The truth is while information is easy to get or access, it takes quiet an ideal amount of time to actually comprehend or understand that information.
Moreover, information that is accessible as easily as that is mostly irrelevant to our vision.
Getting information is one thing, sorting it through is another thing.
In addition, it is critical to realise that most of these people are in business so they try to offer fast, simple easy solutions to very speculative potential investors who become frustrated at the end of the day.
Technology does not really change underlying principles of investing and making money, it only changes the way of doing things, making it easier, convenient and more efficient.
For instance, one still needs to understand the business that he/she is investing in and this, in reality, takes time and effort.
However, people can also gather information from books that specialise in investments or areas of specific interest.
It is also useful to make use of specialist knowledge from consultants, brokers provided you make your vision clear to them.
They will give you tailor-made information to meet your unique needs.
The challenge is that people go to consult not knowing exactly what they want to achieve, that is, without a vision.
It is also critical to consult and then think for yourself.
Term of investment (long-term or short-term)
In simple terms investment means “less consumption now and more consumption in future”.
The main issue is how long into the future is one willing to wait.
The best investment portfolios have on average generally turned out to be long term (10 years).
The period is generally long enough to absorb all cyclical pressures and shocks in the economy to bring real return, that is, return above inflation rate levels.
However, people usually expect a return in the short term. They think that they will be investing when they are in fact speculating.
For instance, the 2008 season when prices were plummeting everyday in Zimbabwe on the stock market, people rushed to buy shares.
That was not investing but mere speculation.
With a dollarised economy one must invest based on sound economic principles to make real return.
In addition, compound interest is your best friend when it comes to long-term investment.
It is when money works for you through ploughing back of interest earned.
The subject of investment cannot be exhausted in one article.
l The writer is a tutor at the University of Limpopo-School of Accounting and School of Mathematics. He can be contacted via e-mail: [email protected]/[email protected] or cell +2778 973 8405, +2779 548 3476
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