This is a question that we get a lot at Delta4. Although there is no surefire answer to this question and individual circumstances greatly impact this answer, we truly believe that it is better to start earlier than later. Doing this from an early age (i.e. the moment you start receiving a formal income) means that you get time on your side due to the compounding effect of investment returns.
To help you make an informed decision, here are a few tips to consider when it comes to starting a financial portfolio:
- Future Goals/Major Life Events: There seems to be a common trend in our industry where clients only seek professional advice when they near a major life event (such as marriage, buying a house, retirement etc.). However, at Delta4 we believe that by planning for things like retirement or buying a house or even an overseas holiday early on, will help our clients navigate these major events with greater ease.
- Starting Early: As mentioned earlier on, when individuals start their portfolios at a younger age, they benefit from compounding in the long run.
- Risk Tolerance: Your ability to handle and absorb financial risk is often linked to your age. In general, younger clients can afford to have a higher risk profile versus older clients for example nearing retirement. One simple reason behind this is that on average, we expect that young clients will spend a longer time in the workforce – meaning that their portfolios have more time to recover from negative market movements. However, this is a basic rule of thumb, and we encourage all clients to speak to a financial advisor, and have a Financial Needs Analysis done before deciding on a risk profile.
- Country-Specific Needs: The financial landscape in South Africa differs dramatically from the one in developed countries such as the US or Germany. Given the state of our country, citizens carry the responsibility to contribute to their own retirement and to not over-rely on the government for such care. This, along with various other country-specific factors needs to be considered when building a financial portfolio.
- Consistency: A key thing to remember is that you do not need to be able to buy all the investment products or the full portfolio in one go. In fact, one of the things that makes a financial portfolio so valuable is the flexibility it offers, as well as the fact that clients can build this portfolio over time – buying new products as they are able to afford them. Access the core components of a financial portfolio via this link.
In summary, it is important to realize that there is no one-size-fits-all solution to building a financial portfolio as it is highly dependent on your unique circumstances. However, by starting to construct your portfolio at an early age, you allow yourself to develop a much more thorough and resilient financial plan than shooting from the hip at the last moment.
Written by A. Esterhuizen
(MCom; BComHons – Cum Laude; BCom)