Mistakes can be minimized and/or eradicated with continuous learning and development. Some investors overlook valuable information, which is handy in creating healthy, well-structured portfolios.
The following is critical in building well-structured portfolios:
Terms and Conditions
The financial service provider’s terms and conditions should be well read and understood. We can evaluate the current and future impact of the terms and conditions on our portfolio and thereby insulate our positions proactively. Before investing, we should give primary importance to how the operations of the broker can affect our positions.
What are the legal implications, rights, and obligations once we sign and invest with our chosen brokers or bankers? Any breach of the terms underlying our investments can lead to legal repercussions and/or penalties; hence, investors should be well versed on this. It is not only about investing in shares or other instruments, it is also about how the entire business operations can affect your future returns. The obligations in the future can be costly if we don’t understand the underlying terms and conditions.
If you do not understand the terms and conditions, the onus is upon you to seek clarity from the service provider. Some investors accept the terms and conditions without adequate understanding of the underlying terminology and conditions.
According to some terms and conditions of financial service providers, you can borrow against your shares. Your shares will act as collateral security. The risk arises when the price of the shares starts going down, potentially putting you in a negative equity position. The shares can be sold to cover the losses, or you will have to put in more margin to cover potential future losses. Instead of just borrowing, understand the underlying collateral dynamics.
An example of terms and conditions on fractional share ownership is of utmost importance. A share price on the JSE may cost R200. An investor with R100 can still buy the share but owns half title, not full share ownership, as their funds (R100) are not enough to buy the full share (R200). This transaction is done over the counter through a contract for difference (CFD). The risks and benefits are claimed from the derivative provider. The fractional share does not have voting rights; however, it still receives dividends equivalent to the proportional ownership.
Privacy Policy
Understanding the legal use of your personal data and any misuse is vital for a complete investor. Misuse of your data by the financial service provider is a breach under the POPIA Act. This instrument safeguards your personal information against abuse. Data can end up in the wrong hands and be used to defraud investors. Your personal information is an asset worth protecting.
Proof of Reserves
In the crypto space, reserves may be invested in the traditional financial markets to increase or maintain their value pegged to stablecoins. It is important to understand the liquidation period and process, especially in crisis situations. In addition, knowing how the reserves are invested and structured will give insight into how you should create and diversify your portfolio.
Besides investments in actual shares, investors are duty-bound to understand all other terms and conditions which can negatively impact portfolio performance or return.
Conclusion
Financial literacy is key to reducing investment mistakes. Understanding terms and conditions, privacy policies, and proof of reserves helps investors make informed decisions, manage risk, and build resilient portfolios.
LoanCenter.co.za is a prominent online platform in South Africa that specializes in connecting users with a variety of loan options through its referral service. Unlike traditional lenders, LoanCenter.co.za does not directly provide loans; instead, it serves as an intermediary, facilitating access to reputable financial institutions and lenders. By leveraging an extensive network of partners, the website offers users a streamlined process to find loans tailored to their specific needs, including personal loans, payday loans, and business financing. This service simplifies the borrowing process, ensuring that individuals and businesses can efficiently navigate their financial requirements with confidence.
