6 Guidelines for Your Saving Philosophy

Saving for the future is easier than you may think. However, many still struggle with the basics. Everyone can organise their finances in a way to meet their long-term needs and goals. Making the most of your finances allows them to become a source of security rather than a burden.

Here are our top six tips to getting ahead financially.

1. Start sooner than later

One of the top things those over 50 wish they had done differently is to have started to save earlier in life. The single best way to grow your wealth is to put aside some money each month. When you are young, it is less about the amount, and more about developing the habit of saving. Do not think you do not have enough money – start by putting $50 a month into a savings account. That is what I did. Just remember, it does not matter what you start with, a start is a start.

Starting early is so important because compound interest is the eighth wonder of the world. Think of a snowball rolling downhill. As is gets near the bottom it starts to get big really quickly. If you want a big snowball, you will look for the biggest hill. Starting early is synonymous with starting on a big hill.

Please do not make the mistake of assuming that your pension will be sufficient to fund your retirement. It will certainly be a portion of your retirement plan, but it should be considered only one source.

If you have not started saving yet, start now.

2. Have a plan

Once you have started – great. Now you should develop a plan. If you are still using just a savings account, that is fine. As your savings grow, you might want to consider higher growth strategies such as equities and your plan might be as simple as “I am putting aside $50 a month and when I reach $1,000 I will invest in the stock market”. Investing in stocks requires an update to your plan. This is where most people hit a roadblock. But this need not be the case and investing in stocks does not have to be complicated. There are plenty of resources to help you develop a plan that meets your needs.

Your plan would include: 1) how long you intend to invest, 2) the intended purpose of your investment, and 3) your tolerance to risk. Having a plan will hopefully prevent spur of the moment decisions or emotional reactions when the inevitable declines occur.

3. Learn from your mistakes

Making mistakes is part of the process and it is not a problem unless we stop saving. We all make mistakes and they should be seen as part of the learning curve. Whether you are an active trader or prefer passive investing, you need to learn what works best for you. This is another advantage of starting early. The lessons will be frequent and the impact of a mistake less severe.

Common misconceptions about investing are that you cannot take risks or you cannot take several risks at the same time. Being uncomfortable with risk and not having a plan are the principle reason why many retail investors buy high and sell low. Do not let this be you.

4. It’s about you

Investments are like a well-tailored suit. It looks better if it has been adjusted to fit you. Do not worry about what other people are doing or what investments you think are popular. Think about your own circumstances and your own goals. They may be completely different from those of your neighbour or colleague. You may be more averse to risk, or have other short term goals, such a saving for a holiday, a down-payment on a house or a wedding. In this circumstance, your investments would likely be different from someone saving for university.

To determine an investment strategy that is suited to your financial needs, take Argus’ online investment questionnaire. You can also use the online calculators (located under the Argus Online Tools tab) to help with your planning.

5. Know what you are invested in

With any investment, understanding it is critical. Whether you have a simple strategy that includes just an index fund or a more complex strategy of individual equities, for each position in your portfolio you should always be able to answer two questions: what am I invested in and why am I invested in it? These questions compel you to understand the risk and nature of the investment. Is it a core stock fund for growth, a fixed income fund for income or risk reduction, or an opportunistic investment higher return? Each position will have a role to play and needs to complement the other holdings.


6. Think Local

The Bermuda Stock Exchange (BSX) has recently launched a campaign to educate Bermudians on the benefits of local shares. Owning shares in Bermuda companies is a great way to start a savings plan and to learn about investing. The benefits are that you already know the companies very well, they can provide attractive returns and investing in Bermuda shares is inexpensive. Here is a link to the brochure on the BSX website http://bsx.com/IEG/index.html

Alternatively, AFL Investments Limited can provide access to a range of options to assist you with meeting your long-term goals. Find out how your investment objectives can be met with our range of investment solutions here.

Joel P. Schaefer is President & CEO of AFL Investments Limited. He has more than 20 years of experience. He was president and CEO of Capital G Investments and is a qualified chartered financial analyst and has a Bachelor’s degree in economics from Wesleyan University in Connecticut. AFL is a wholly owned subsidiary of the Argus Group.

AFL is licensed to conduct investment business and is regulated by the Bermuda Monetary Authority under the Investment Business Act 2003. This article is not a substitute for professional advice, you should always consult with your independent professional advisor.