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Investment Strategy
Monday, May 1, 1989
Life assurers for the layman…

Even the “experts” battle to make investment decisions. So how does the layman ensure he is catering for his personal needs through effective investment? Part of the answer is to understand the criteria on which investment decisions are based and become aware of the options available.
Without entering into a debate on what school curriculums should or should not contain. I find it disturbing that the majority of those leaving the classroom will not have any training in many of the important aspects of modern life.
Areas like running cheque accounts, making investment decisions and compound interest are ignored. I realise that scholars already have a great deal to learn, hut in leaving out these areas of development, we are not giving them the tools to understand the issues or to be aware of the various options available when dealing with investments. Although accepted, it is necessary to emphasise that life is made up of short and long term goals and that, generally speaking, these goals have financial implications.
We need, therefore. to consider our investment planning in terms of short and long term criteria as well as in terms of affordability.
What do we mean by short term goals? Some of the most obvious are the requirements of our day-to-day living like groceries and clothing. Transport costs and the need to have finance available br a holiday or some small luxury should also be considered. Perhaps the most obvious long term goal is the need to make some sort of provision for retirement. There are numerous others such as the provision of an income or the family in the event of death or disability, buying a home and leaving an inheritance. There are ways to cater for all these goals and. in saying this. I emphasise the need to consider not only one avenue of investment but a balanced portfolio utilising the various available types of investments. Every investment has its strengths and weaknesses and it’s important to select those which suit your circumstances. Without exhausting the list of available investment avenues, here are some of the best known and proven channels available:
• life assurance
• mutual funds:
• property in its various forms;
• banks and building societies; and,
• listed shares.
Life assurance is a very useful and, indeed, necessary form of investment. It could even he argued that this medium should be the foundation of your investment portfolio, particularly when considering the need to give your dependants access to funds for their future requirements in the event of your death or disability.
Unless you are very wealthy, life assurance is the only answer. In addition, life assurers offer longer term savings contracts (normally for ten years and more) and make specialised provision for retirement through, amongst others, pension, provident and retirement annuity funds.
While life assurance does in many in stances, also offers access to cash through policy loans some contracts, like retirement annuities, do not provide any form of liquidity until the contract matures.
But this type of restriction can be viewed as a strength in that it prevents the benefits being squandered before retirement. The fact that there are limitations associated with certain life assurance policies indicates that other invest- mciii media need to he considered to supplement the portfolio. So it may be necessary to set aside a certain part of one’s discretionary income for life assurance and part for short term savings with a bank or building society or even perhaps with a mutual fund.
However, bear in mind that the risk profiles of savings accounts and mutual fund units are very different. This means that the returns on savings accounts are traditionally conservative and relatively stable, whilst mutual funds can yield handsome returns but are subject to stock market vagaries.
Another important investment route is property. For example, for those who can afford homes of their own, the capital gain when the property is sold often results in a good return on investment. Again this needs to be analysed in conjunction with other investment options. In particular, it is necessary to have life assurance to ensure the home is paid for in the event of the death or disablement of the breadwinner.
Associated with all the different areas of investment are various tax implications and advantages. These, of course, need to he considered with the investment profile required!
Often, investments that offer attractive nominal rates may have onerous tax implications.
All in all, it is important to be conscious of the availability of various investment opportunities and that each avenue has a strength which may not be present in the other options.
Ensure you invest according to your needs.

Copyright © Insurance Times and Investments® Vol:2.5 1st May, 1989
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