1. Choose a savings goal

Decide what you are saving or investing for and your savings goal or target. Are you saving for school books, uniforms and fees for next year, or a holiday, or home improvements, or a car, or retirement? You might have more than one goal.

Warren Ingram, an independent financial adviser with Galileo Capital and a former winner of the Financial Planner of the Year Award, says you should choose a goal that inspires or motivates you to save. If you have a ai???boringai??? goal, such as to save for retirement, complement it with a goal to save for something more exciting in the short term, such as a holiday.

If you donai??i??t have savings to meet unexpected expenses, such as travelling to a funeral, a large medical bill, or home or vehicle maintenance, you should make it a goal to set up an emergency fund.

Financial advisers typically recommend that you set aside three to six months of your income in an emergency fund. But anything you set aside will help when a financial crisis arises.

2. Choose a time horizon

Your savings goal should determine your investment time horizon, such as the end of the year if you are saving for a holiday, or the date on which you will retire.

Short-term goals typically have to be met within 12 months, while medium-term ones, such as saving for a major event, such as a wedding, or a new car, or university fees, have investment horizons of between a year and five years. You typically want to achieve long-term goals over more than five years.

The longer your time horizon, the more your investment will grow, the more your returns will compound, and the more investment risk you can afford to take.

3. Understand risk and reward, and investment time horizons

Tried-and-tested regulated investments, such as unit trust funds and share portfolios, will reward you with higher returns if you take more investment risk.

Taking investment risk means accepting that your returns will be volatile: your investment will show both losses and gains over short periods. But over the long term, the gains will far outweigh the losses.

Among formal investments, shares (or equities) have the highest investment risk, but also the potential to earn the highest returns. Property shares, or listed property, are the next most risky, but can also deliver good returns. Bonds offer lower returns, but are less risky than equities. Cash investments, such as money market accounts or savings in call or fixed-deposit accounts, have the lowest risk of losing money, but typically the lowest returns.

You can reduce your investment risk by investing in more than one share or bond and in more than one market sector. You can also invest in offshore markets. This is known as diversification ai??i?? when one share, asset class, sector or region does not do well, another may do better.

For investors with relatively small amounts of money to invest, the cheapest and easiest way to achieve diversification is to invest in a unit trust fund or an exchange traded fund (ETF).

ETFs are known as passive investments, because the shares or other securities in which they invest are in line with those that make up the index they track and are not selected by a fund manager. There are also passively managed unit trust funds that track indices. Passive funds have lower costs and deliver returns in line with the index they track.

Fund managers that select shares and other securities charge higher fees, but aim to out-perform what the market delivers by following an investment style or philosophy.

As a South African investor, you can use rand-denominated unit trusts and ETFs to access offshore markets without the hassle of investing in a foreign currency.

Unit trust funds classified as multi-asset funds are particularly suitable for investors who want to diversify across the main asset classes of shares, bonds, listed property and cash.

4. Determine the return you need and ensure it is realistic paroxetine no rx, methylprednisolone dose pack buy online. purchase dapoxetine.

If you have R500 a month to save and you want R100 000 in 10 years, for example, you will need to earn a return of 10 percent a year.

You can find online investment calculators that will help you to work out the return you need, such as the one from Liberty ai??i?? go to www.liberty.co.za, click on ai???Supportai??? and scroll down to ai???Tools & calculatorsai???.

Compare the return you need with the long-term average returns that investors have earned from different investments, and donai??i??t expect to earn much more unless you want to expose yourself to risk. For example, you may be promised a higher return if you invest in an unlisted property syndication scheme or a Ponzi scheme, but this comes with the risk of losing all your money, as so many people have found out the hard way.

For your investment to grow meaningfully, it must earn a return that at least beats the inflation rate, currently at 6.3 percent (year on year to the end of June).

The bankai??i??s best five-year fixed deposits are earning about 8.4 percent a year, while money market funds (from which you can withdraw at any time) are earning returns of about 7.5 percent a year (subject to change in line with changes in interest rates).

A unit trust that aims for a little more than a cash return (an income fund or an enhanced income fund) could earn about one percentage point more than 7.5 percent. You should not expect a local bond fund to return more than 1.5 percentage points above the inflation rate.

According to Old Mutual Investment Groupai??i??s Long Term Perspectives 2016 survey, equities, as measured by the FTSE/JSE All Share Index, have, on average, earned 7.5 percentage points above inflation since 1929. That equates to a return of 13.8 percent a year at the current inflation rate.

A local multi-asset fund delivers 5.8 percentage points more than inflation. Global share markets have a long-term track record of delivering 5.1 percentage points more than inflation.

5. Choose an investment thatai??i??s likely to provide the return you need after costs

If you need a high return ai??i?? say, five percentage points above inflation ai??i?? you will have to invest in equities, or a fund that has at least 65 percent in equities and listed property.

A medium-risk investment will return between 1.5 and three percentage points above inflation, while a low-risk investment will earn one to 1.5 percentage points above inflation.

6. Check that youai??i??re comfortable with the investment risk

Although the long-term average returns from equities will grow your money, you could lose money over the short term, such as a year. But you will realise this loss only if you cash in your investment. The returns in subsequent years are likely to make up for the losses in previous years.

However, you have to be comfortable with the fact that long-term statistics show that, after inflation, South African equities have produced negative returns in one in every three years.

Old Mutualai??i??s research shows that if you invest for five years in a South African equity investment, your average annual return after inflation could be anything from 31 percent to minus 14 percent. Over a 20-year-period, however, the range of annual average returns is much narrower, between two and 13 percent.

If you canai??i??t stomach the risk you need to take to meet your investment goal, or your time horizon is too short to allow you to risk incurring a loss and waiting for the market to recover, you need to invest more or push out your time horizon.

7. Choose the right type of product

Low-income earners should not worry too much about tax on their investments, because this is likely to be of little consequence.

If you are a higher earner who wants to pay less tax and you are saving for retirement, your best bet is to invest through your pension or provident fund or a retirement annuity (RA) fund. This is because not only are your savings within the fund exempt from tax, but your contributions are tax-deductible up to certain limits. Remember that you canai??i??t access money saved in a retirement fund for other needs in the short term, unless you resign from your employer, or, in the case of an RA, after the age of 55.

If you want to save tax on long-term investments, but may need to access your savings at short notice, or you have exhausted your retirement fund tax deductions, consider a tax-free savings account. You can contribute up to R30 000 a year or R500 000 over your life-time to one of these accounts. You will not pay any tax on the interest income, the dividends or the capital gains, regardless of how much growth you earn. Many of these products are offered on investment platforms, known as linked-investment services providers, that give you access, at a cost, to a range of unit trust funds, ETFs and shares through a single financial company.

8. Find a suitable product provider

Ensure that a product provider is registered in terms of the relevant legislation. Unit trusts and many ETFs are collective investments that should be registered under the Collective Investment Schemes Control Act, and the unit trust company should be registered as a financial services provider with the Financial Services Board (FSB).

An ETF that is not a collective investment scheme should be listed on the JSE. A stockbroker and an online stockbroker should be registered with the JSE.

A financial adviser should be registered as a financial services provider with the FSB.

9. Check an investmentai??i??s track record

You should check the past performance of a providerai??i??s investment before you invest, but always remember that you canai??i??t take past performance as a guarantee of future performance.

It is relatively easy to check the performance of a unit trust fund or an ETF, because funds are obliged to publish their performance. Personal Finance publishes a performance table every week.

Because current performance may be the result of a stroke of good luck, you may want to look at a measure of consistency of performance ai??i?? that is, performance that is repeated consistently over time ai??i?? such as the PlexCrown ratings, which are included in our weekly performance table.

Personal Finance also publishes the PlexCrown survey of unit trust managers. This survey identifies which managers have top-performing funds across their range of funds on a consistent basis.

It is more difficult to check the performance of a stockbroker-recommended portfolio or a portfolio of unit trusts recommended by a financial adviser, but stockbrokers and advisers should be able to show you the past returns of the portfolios they recommend.

10. The easier options

If doing all of the above yourself seems too much like hard work, there are two easier options. One is to turn to an independent, qualified financial adviser for help. You will typically pay an annual fee of up to one percent of the value of your investment.

These websites can help you to find a good adviser: www.fpi.co.za, www.findanadvisor.co.za and financialplannerawards.co.za

The other option is to use a robo-adviser that guides you through identifying your goals, investment horizon and choosing a suitable range of unit trusts.

The robo-advisers offered by listed financial services company Sygnia and Galileoai??i??s SmartRand direct you to passively managed unit trust funds.

Financial advice firms, such as Beanstalk, Bizank and Investonline, that offer robo-advisers direct you to a mix of actively managed funds.

Final word

Just do it. You are likely to lose more money by not being invested at all than not being invested in the perfect investment. As long as you avoid the scams, it is more important that you choose an investment that earns less-than-spectacular returns than it is that you do not earn any growth at all.

TAXES ON INVESTMENTS

claravis. Tax on interest: you pay tax on the interest your investment earns at your income tax rate, which increases in line with your income. If you are under 65, the first R23 800 a year in interest is tax-free. If you are 65 or older, the exemption is R34 500.

Dividends tax: you pay dividends tax at 15 percent on dividends earned from local shares (this tax is withheld by company paying the dividends or your unit trust fund).

Capital gains tax (CGT): you pay CGT on the gains you make on your investment when you sell it. Annually, you enjoy an exemption on the first R40 000 of gains you make. Thereafter, 40 percent of the gain is included in your income and taxed at your income tax rate.