Essentially saving is there to meet short-term financial goals, like setting up an emergency fund, saving for a holiday or even a wedding. Investing is there to help you reach longer-term financial goals, like retirement, children’s education, future capital for business ventures, a deposit on a new home or even to buy a new car in a few years’ time.

Saving options are normally less risky than investment options, however despite the risk, investing tends to deliver higher returns over the longer term (8 years or longer) than saving.

Saving and investing are equally important, and an investor should ideally have a combination of saving and investment options as part of a solid financial plan. As an example, if you set up a good emergency fund (savings option) you don’t need to access a portion of your retirement funds (investing option) when times get little tight with your finances.

If you are a member of your employer’s retirement fund (pension or provident fund) then you are already well on your way to help fund your retirement. You can supplement your employer’s retirement fund by investing in a retirement annuity in your own capacity.

Retirement Annuities (RA) are also great investments for those that don’t belong to an employer retirement fund. RA’s have the same tax benefits as an employer retirement fund. You can contribute up to a maximum of 27.5% of your taxable income each year to reduce your tax bill with the Receiver of Revenue (SARS). All money invested in a pension or provident fund as well as an RA grows tax free. This can give you a better outcome over the long term, compared to investments where the growth is taxed. You could even get money back each year from SARS, if you use your RA wisely.

These days access to international investment opportunities is much easier than ever before.

The amount you choose to invest locally and internationally should be driven by your unique investment objectives. If you are planning to move overseas one day, or you want to diversify your investments then investing more offshore makes sense. If you plan to remain in South Africa and spend in South Africa, then ensuring your needs and objectives are covered by your local investments is wise.

A good principle when it comes to investing is to diversify your investments in a manner that allows you to take advantage of both local and international investment opportunities, how much really depends on your unique goals and objectives.

Before deciding whether to invest locally or internationally it is best to seek good financial advice.

The main taxes applicable to most investments are Capital Gains Tax (CGT), Dividend Withholding Tax (DWT) and taxation on any investment interest earned. It is important to understand these taxes and how they impact your particular investment, and a good financial adviser can help.

Some investments have special concessions that allow you to invest tax free, like a Tax Free Savings Account (TFSA). A TFSA allows you to invest up to certain limits, currently R36 000, in a tax year. The money in a TFSA grows tax free and all withdrawals are also tax free. A TFSA is a wonderful investment that should be part of every investor’s financial plan.

Other investments like Retirement Annuities can reduce your tax liability with SARS and even get you some money back. Endowments can also offer tax incentives for certain investors, especially if your marginal tax rate is higher than 30%.

The world of investing can be divided into two main categories, discretionary investments and compulsory investments.

Compulsory investments help you invest towards retirement goals and include investments such as Pension Funds, Provident Funds, Preservation Funds and Retirement Annuities.

Discretionary investments are investments other than retirement products, like a share portfolio invested on a stock exchange such as the JSE, unit trusts, property, bank accounts and Tax Free Savings Accounts to name but a few.

Compulsory investments take care of retirement goals while discretionary investments can take care of goals like education, weddings, holidays, home deposits or any unique specific investment need. Both compulsory and discretionary investments are needed to help build a financially sound investment portfolio.

In this modern day and age, thanks to advances in technology, investing is easier and simpler than ever before. However, before making an investment, it is important to understand the following to ensure you know what to expect from your investment:

• What happens to your investment when you die?
• What tax is applicable?
• How can you access your investment, what are the investment terms, limitations and restrictions to accessing your money?
• What is the risk you are taking?
• What kind of returns can you expect and over what period?
• Is the investment return guaranteed or not?
• How much are you paying in fees?

This is not a comprehensive list, but it is a good start to help you understand how your investment works, before you invest. Making an informed investment decision will serve you well.

When investing there are primarily three parties that are normally involved:

The Financial Adviser:
The person responsible for setting up a solid financial plan to meet your unique investment objectives and circumstances, after doing a proper financial analysis of your finances and needs.

The Investment / Asset Manager:
These are professionals who invest the money held in a particular investment product, allocating the money to a variety of asset classes like shares, bonds, cash and property based on the structure of the portfolio. They buy and sell the assets as necessary to produce the return on your investment.

The Administrator:
Administrators are responsible for ensuing all administration related to your investments are taken care of, such as providing tax certificates and investment statements, updating personal details and beneficiary information and allocating contributions or paying withdrawals.

All three parties charge fees for their respective services and all three contribute to the success and efficiency of your investment.

There is no hard or fast rule when it comes to how much one should invest. The more you can invest the better. Also, if you are saving for retirement, the earlier you start the less you need to save as you benefit from compound interest. Generally, when investing for your retirement you should try to replace at least 75% of your salary when you retire.

In other words, if you earn R 30 000 per month just before retirement you should aim to invest in such a manner to build up an amount that will provide you with R22 500 per month in retirement.

To get to a replacement ratio of 75%, the guide is that you should save at least 15% of your salary if you start young, but if you wait till later to start investing you need to save more. An adviser can help you calculate how much you need to save.

If you are investing for specific goals like your children’s education, a holiday or even a wedding, then the more you invest the quicker you can reach your goal. Use the actual cost for the goal to work out how much to save to achieve the goal by a specific date.

It is best to speak to a skilled financial advisor to help you select investments that will achieve your unique investment goals. Be sure to track your progress to ensure you achieve your objectives.

Some investments like Living Annuities and endowments can be transferred seamlessly to your nominated beneficiary in the event of your death.

Retirement funds (Pension, Provident, Preservation and Retirement Annuities) are governed by boards of trustees who are legally responsible to ensure that your funds are best used to support those who depend on you. The trustees have the final say as to how your retirement funds will be distributed. It is important that your beneficiary nomination is up to date to assist the trustees to make their decision.

Discretionary Investments (unit trusts, shares portfolios, property investments etc) are distributed to your beneficiaries in terms of your will.

It is important to ensure you have a professionally drafted and updated will to make sure that your wishes for your beneficiaries are implemented correctly after your death.

Debt, like inflation can slow investment growth and your ability to build wealth over time. It is always sensible to get rid of debt as fast as possible and by doing so you free up your ability to truly focus on investing.

It is sensible to pay off expensive debt like personal loans and credit cards before investing, as the interest rate payable on debt is higher than the returns possible on investments. It is not always necessary to pay off a home loan or vehicle before investing, as the interest rates are lower and an investment could give you a better return.