Planning for today and tomorrow

Not for many, but for some, money really does make the world go round. Let's face it, in this day and age, where everyday life has become more materialistic and people have become more ambitious and push themselves even further in life, the sense of achievement has become one of the greatest milestones in a person's life cycle. Some have the luxury of finding everything on a golden plate, whilst others grind their teeth and struggle to make ends meet, perhaps making the latter type even more determined in nature.

During a lifetime, everyone will at one point or another ponder the purchase of something expensive which requires a significant amount of thinking behind the decision, such as the purchase of a house, car, boat or even jewellery. Such purchases require a large initial outlay of cash which are likely to have been the result of a number of years of planning and saving.

Then there's what I like to call the planning/saving of day-to-day expenses or rather working capital, which is merely an exercise of determining a person or family's income less expected expenses. In this category, we would include those recurring and predictable items such as income on one hand and expenses relating to groceries, insurance, schooling, utility bills and an endless list of other miscellaneous expenses. Naturally, those who earn more than they spend are net savers whilst those who spend more than they earn are net spenders.

In my opinion, one of the most important types of savings in a person's lifetime, a concept which in my mind is not emphasised enough, particularly at a younger age, is the idea of saving and investing for the long term. This type of savings goes beyond the concept of the savings for the purchase of that luxury car we always wished for, or that long awaited family trip to Disney. It's the idea of putting aside that little bit every month, enough not to impact your daily life and enough to ensure that the monthly instalment is kept fixed over the years. No large amount is required; just discipline, and ensuring that you are in no way dependent on this money. Take me for example, let's say I put aside €50 a month for the next 31 years, till I retire, (until some wise guy decides to increase the retirement age beyond 65), that would mean that I would have effectively saved €18,600, right? Not quite, because we all know that inflation eats away the value of money. So what does a saver need to do to 1) limit the erosion of capital as a result of inflationary pressures, and 2) seek to achieve long term capital returns?

The answer to me is pretty simple. Seek professional advice and invest in a savings plan which suits your needs and fits your risk profile. There are a number of long-term savings products which cater for investors' needs. What I like in particular about them is that, by investing in these plans, with a specified amount at regular time periods, the popular financial concept of cost averaging will be adopted.

Cost averaging is achieved as the amount of money invested at each interval remains the same over time, but the number of shares purchased changes based upon the market value of the shares/units at the time of a purchase. When the markets are up, investors purchase fewer shares/units per amount invested due to the higher cost. When the markets are down, a larger number of units are bough as a result of a cheaper cost price. It is merely a strategic way to invest (and cost effective too given the small amounts being invested) because investors purchase more shares when the cost is low, so an average cost per share over time is created. The key benefit is that investors need not invest the time and effort to monitor market movements as this strategy clearly caters for that. Investors need to be patient however. The benefits if cost averaging are evident over a long period of time and not over a couple of months or 1 year. Markets oscillate in what we term as investment cycles, and savings plans are structured in such a way so as to achieve the long-term benefits of investing.

Disclaimer: This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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