The trend nowadays for most personal finance advisers is to recommend long-term investment propositions as solutions to the average GenX or GenY (the millennial) client. Now if you are in your late 20s or early 30s, the idea of only seeing returns far away on the horizon may not sound exciting, but this is an aspect of your investment that needs to be taken seriously. If you are in the age group that I have just mentioned, then the likelihood that you will be working into your late 60s is a strong possibility. Look around you now and you'll notice that the working lives of most people are now longer than they were when you were growing up.
Life expectancy around the world is increasing and with that, the average retirement age is also being pushed up further. It is more important now than it ever was to put money away for your financial future. The possibility is so much higher today that you will outlive your money. Now, that is something that can only be sorted through some considered planning.
There are a few dos and don'ts to keep in mind when you plan your long-term investment. Firstly, this can't be your only investment vehicle. It would be unwise to park all your surplus money in this sort of an investment simply because money needs to be put aside for emergencies or short-term requirements. This might sound like basic stuff, but this can't be emphasised enough in today's times.
A commitment needs to be made to lock up your resources so that they are available to you when you need it for your long-term goals. Or to put it in simpler terms, you need to put away money into your long-term plans on a regular basis. Ensure that the plan you are investing in takes care of liquidity requirements and is flexible enough to change with your financial situation in years to come. This should be something that can take care of the education requirements of your children, your retirement and any other long-term need you may have along the way.
Needless to say, if you were working in any country with a prevailing tax system, you would continue to pay anywhere between 15-50 per cent of your income as tax. Now in some countries, what you give to the government comes back to you in some form - funds go towards the education of your kids, your pension is sorted, you have social security and the like. While that system does not exist over here, most expatriates here actually have the freedom to allocate how much of their money goes into the savings pot for education, retirement, purchase ofa home and so on.
There are pros and cons to getting into a long-term contract. But remember this - when you are younger,the pros far outweigh the cons. Staying in for a long period in equity markets without trying to time it is probably the best and the easiest way to invest. Personally I own a 25-year plan too. Like they say, "It's not timing the market, but time in the market that will make a bigger difference."
This is the first of a two-part series on long-term investments. Come back for more next month.
Rickson D'Souza, is director of wealth management at Pinnacle Insurance Brokers Dubai, Tel: 04-346-8888.
Rickson D'Souza is a member of theTop of the Table at theMillion Dollar Roundtable. This basically means he is among the top 1 per cent of financial advisers inthe world.
