Financial Myth Busters: Don’t be an April Fool's

Although there are many of these misguided ideas, I want to clarify some of the most relevant myths:

1: Money market funds are suitable long-term investments, as they will protect your capital:  The dilemma with this notion is that your capital will most likely suffer a loss of purchasing power over time due to inflation.  There is, however, a place for money market funds in portfolio construction, especially when a short-term financial goal must be addressed.

2:  Investing in equities is similar to gambling: In my opinion, this is one of the most common fears taunting investors that are new to the process of investing. We often see that investors who use a dartboard approach fails to see the desired result as they do not understand the underlying detail of the companies in which they invest. This approach is mostly driven by the fear of missing out. Ask yourself, is the Friday evening braai hot equity tips gambling, or investing?  The fact is that equities play a crucial role in generating long-term capital growth.  It is, however, true that the best results are achieved through the assistance of a skilled portfolio manager, licensed to assist you in the selection and management of your equities portfolio.

3:  Investing is only for the rich:  Well, I guess we all have to start somewhere. The power of compounding has been described as the 8^th wonder of the world.  The patient and consistent investor will be rewarded with the splendour of financial success. Most of the investment platforms allow investors to build their portfolios with a monthly debit order of R500 and even less. As you proceed in life, you can build your empire by increasing these investment amounts. Your Certified Financial Advisor will be able to assist you with this.

4:  In order to achieve outstanding results, extraordinary risks must be taken: I do not believe this statement to be true. If you want to achieve financial success, you need a well-thought-through financial plan. This will ensure that you will remain focused and committed to your plan. A well-constructed and diversified portfolio will not only protect your portfolio against risks but also achieve the desired results.

5: Long-term risk products, including Critical Illness and Disability Cover is only for those with a family history of medical problems: On many occasions, I have heard the opinion that long-term insurance products should not be viewed as a necessity when constructing a financial plan. Included in this idea, is the notion that medical aid will cover all the expenses related to severe health problems.  It is important that we stop and ask the uncomfortable question – what will happen if my health problems affect my ability to work and I can no longer earn a regular income?  Imagine if this happens to you in your early thirties.  The reality is you will become financially dependent on others and you will be forced to use your hard-earned retirement saving to supplement your income. To me this does not sound like an April Fool’s joke, but rather a nightmare.

Although we have much to joke about in April, you should always be cautious to separate the fake news from the truth.

Have a happy April further.