Investing in difficult times

The process of investing

The process of investing in the financial markets may seem daunting and complicated to most people. This process can be likened to the mechanics of a wind pump – a familiar sight and concept for most South Africans.

 

Financial markets move like the wind – unpredictable and changeable. They move your underlying investments (the wheel on the wind pump), and therefore directly influence the return you get on your investment (the water that is pumped). The return gets added to your investment value (water in the storage tank). You can withdraw money from your investment – whether on an ad hoc basis, or in the form of a regular income. Withdrawing could diminish your investment value (like water being run from the tap), especially if your withdrawal amount is higher than your investment return. In poor market conditions, your investment may also lose value (the tank can crack and water can run out).

 

Let’s take a closer look at the analogy

The amount of water pumped is regulated by the wind and also by the size of the wind wheel. In the same way, your investment return is regulated by the financial markets and your choice of underlying investments.

With high wind speeds, more water can be pumped. Similarly, in good market conditions, more investment return can be generated.

You choose the most appropriate wheel size for your wind pump. Keeping with the analogy, you are responsible for your choice of underlying investments. Let’s suppose that a big wind wheel represents an aggressive underlying investment choice, and a smaller wheel represents a more conservative one.

 

What is the Investment house’ role in your investment?

The Investment house or platform is represented by the wind pump in its entirety.
It’s the machine that helps you pump water, just like our investment platform is where your investment is hosted. The unseen parts (such as the shaft, gears, and pump
cylinder), represent their administration and sales teams. They’re fundamental in making sure your investment functions as intended. Their task is to ensure that your instructions are carried out correctly; that you are provided with the wheel of your choice, and that the tap is opened timeously, should you request some water.

 

Bovest: a fundamental partner

You can think of your financial intermediary as the agricultural consultant in this analogy. While he cannot control the wind, he can certainly help you achieve the best possible outcome in any circumstances. He helps you choose investment options that best suit your needs, investment objectives and tolerance for risk. He will also help you manage your investment appropriately. This entails decisions about changing your underlying investments to match your needs and the market conditions, as well as decisions about withdrawals – ensuring that you get maximum benefit from investment returns, while still fulfilling your financial needs.

 

Source: Glacier Financial Solutions (Pty) Ltd | A member of the Sanlam Group

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