Deciding on the best investment

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Diederik Kruger*

Windhoek

A new year brings new possibilities. It is the time of the year when people are well rested and have the time to do some forward planning. It is therefore the perfect time to evaluate your savings and investment plans.

Term of the investment
It is important to consider the recommended investment period for an investment. Many of the market linked investments recommend a three to five-year investment horizon because market fluctuations in the short term can affect the return on your investment. Similarly, when we look at term deposits, short-term deposits will not give you the same return as long-term deposits. In a market with high uncertainty on the direction of interest rate movements, the difference between short-term one-month deposits and 12-month fixed deposits will favour the long term investor. An investor can decide to wait for future rate increases by keeping their money in short duration deposits or they can choose to earn a higher return from day one and potentially outperform their peers. Some investors will favour the second option to have a guarantee of their income for the period.

Return and taxability
When comparing investment returns, market linked portfolios’ past performance is no guarantee for future performance. Past performance against a benchmark is amongst others, a testimony of the fund manager’s ability to outperform the benchmark in a volatile market.

When considering returns, the impact of tax or withholding tax on your return must be taken into account and this is important when you are dependent on your income for living expenses. When choosing an investment, ask your bank or advisor about the after tax rate to make sure that you compare like for like and make an informed decision.

Risk and volatility
This is certainly an important part of every investment decision. Investors have varied risk appetites and therefore it is important to gauge your own appetite before you make an investment decision. Market risk is the impact of adverse market movements on the return on your investment and your capital invested. During uncertain times, clients may choose to convert some of their investments to low risk guaranteed return products to offset some of the market risks in their portfolio. Investors who rely on the portfolio income for their monthly living expenses may find that fluctuating performance can deteriorate their capital base when market returns are low or negative. This may only be a short term situation, but the impact on their capital base may have longer lasting negative effects on their income.

Why invest in fixed deposits?
There is a host of investment vehicles for individuals these days and investors are often overwhelmed by the complexity and fine print of these investments. Investors want to know that they can trust the organisation that offer the best investment and have some guarantee of the income that they will earn on the investment. It is therefore not surprising that the time tested benefits of a fixed deposit, are still the same today. A fixed deposit offers short to long term investment options that is low risk with a guaranteed return. A fixed deposit with a bank is easy to open through your local bank branch and with this personal contact you can ask questions to help you make the correct investment decision.
Visit your nearest Bank Windhoek branch today and ask about opening a fixed deposit with a superior guaranteed return.

• Diederik Kruger is Head: Funding and Liquidity Management at Bank Windhoek

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