Investment principles for beginners

Investing is a great way to grow your wealth and save for specific short-, medium- or long-term goals. But it might be a bit intimidating when you first start out and you will need some help to decide how you want to invest and why.

Whether you do it yourself or with the help of a financial planner, investing is an important part of your wealth journey. But before you get started you need to understand some basic investment terminology and principles to help you on your way to becoming an investment genius.

For the best experience, we recommend that you work with a financial advisor to help you understand the process and make the right decisions - but you can do it yourself.

Your return on investment will depend on various factors. Here's what you need to know.



Investment risk vs return

One of the key components of investment is risk. When you start investing you'll need to determine the risk vs the possible returns on the investment. Most investments are subject to the performance of the market, as most investments are linked to the market in some or other way.

The way you set up your investment portfolio will take into consideration the risk you'll be taking on and whether you'll make a profit from your initial investment amount. Most often higher risk could translate into a higher return, but it's not a given.

When you start investing you'll need to do a risk assessment or have a financial advisor draw up one for you. This will give you an idea of the possible returns on your investment and clarity on what the risk factors are.

Before you start investing, you'll need to take the following into consideration:

• Risk is generally a subjective assessment and depending on your situation and type of investment, your risk will differ from other risk.
• Higher risk doesn't necessarily give more growth. As investment comes with risk; it's a bit like rolling a dice, but with a proper risk assessment and cautious investment you can increase the probability of higher returns or growth.
• It is not only the income that can be at risk, the initial investment amount can also be at risk. The initial amount is not guaranteed with all investment types and could reduce or be lost over time.

Your investment horizon

Your investment horizon refers to the period for which you plan to invest your money. This affects the growth on your investment. Long-term investments tend to give you more reward. It should be one of your first considerations when evaluating your investment risk.

The longer you invest in the share market, for example, the smaller volatility's influence may be, whereas shorter investments tend to have a higher risk compared to longer-term investments.

Risk assessment plan

Every type of investment comes with some form of risk, which makes it very important that you do a risk analysis to determine whether the investment is worth the risk or is something you can afford.

A risk assessment plan should include the following:

• Type of investment.
  
• Investment amount.
  
• The duration of the investment or investment period
  
• The possibilities for loss and gain.
  
• How you can mitigate risk.
  
• The cost of the risk vs the possible returns.

Investment types

There are various investment vehicles available and choosing the right one will depend on your investment needs and goals.

Here are some of the investment types available to you: