Keep some money aside for a rainy day - money that you will need in the shorter term, plus an emergency fund. We're talking about a savings account or a short term deposit account. Yes, the returns will not be great, but that is the price for access and an assurance about what the money will be worth if and when you need it.

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This should be the first pillar of any investment portfolio, before investing in fixed income or growth assets, which are normally pillars number three and four respectively.

How large an emergency fund should be varies from case to case. A recommended minimum is one month's income and it is seldom necessary for an emergency fund to exceed 6 months' income. A widow or retired person normally requires a larger emergency fund than an investor who is still working.

Money market funds offered, for example, by Old Mutual's Investment Frontiers , or Unit Trusts products, or Galaxy portfolio services, can also be appropriate for this purpose.

There are other aspects to financial planning that are more important than investments - if you have financial dependants, nothing is more important than life assurance. It doesn't matter if you have a few small investments that boom in value, if their combined value is minimal and you die leaving a spouse or children without sufficient income.

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Sufficient life cover is usually the second pillar in a properly structured investment portfolio. As a rule of thumb, cover of up to 10 times the breadwinner's annual salary is reasonable. Very importantly, do not forget about disability cover as well.

It is often said that over the longer term, equities will outperform everything else - while shares can go down as well as up, over time they have consistently outperformed all other assets. The longer you invest beyond five years, the more statistically certain this assertion becomes.

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In the South African context the statement that over the long term shares will outperform other asset classes, needs to be questioned. This has certainly been the case over the last 20 or 30 years.

It is fair to say, therefore, that shares should generally outperform other asset classes over the longer term, say 5 years and longer. Certainly in South Africa over the last 5 years, shares in general have not been the top performer when compared with, say, bonds.

It makes all the more sense, therefore, that you should spread your investments among different asset classes and also strive for some global diversification into other stock markets.

Security comes through spread - no matter how good one particular share, unit trust or individual stock market might seem, the less the spread of your investments, the greater the risk you are taking. That also means investing abroad. Many of the world's best companies are not South African and an absence of international investments means that you may miss out on a lot.

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Risks that can influence the performance or safety of an investment come in different forms, such as market, currency, inflationary, geographical, prudential, political etc.

It makes sense, therefore, to not only spread your risk amongst the different asset classes, being shares, bonds, cash and immovable property, but also among different companies, countries and currencies.

A South African resident over the age of 18, whose tax affairs are in order, can take up to R750 000 out of the country for direct investment offshore, or can indirectly invest locally with no limit (only product and availability limitations) via international asset swap portfolios, e.g. Old Mutual's Worldwide endowment funds, Old Mutual's Global Unit Trust Fund, Galaxy and Investment Frontiers.

Although commentators differ on this, it would not be unreasonable to have 40% of your portfolio backed by offshore exposure.

Guarantees cost - there is nothing more attractive than a guarantee, especially an investment purporting to offer stock market-type returns without any risk to your capital. The reality is that you cannot have your cake and eat it. Guarantees cost and the price is a (significant) reduction in returns.

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While this general rule is always true to some extent, in the case of Old Mutual endowment policies, it is possible to have a guaranteed maturity value while the investment performance is linked largely to a share-based portfolio for very little cost. As such, it is still possible to have your cake and eat most of it. These low-cost guarantees have become even more attractive now in a lower inflationary environment and in recent times with a more volatile stock market. They should be used while insurers still see fit to offer them.

Do not take more risk than you are prepared to accept - never forget that the highest returns come to those who take the highest risks. The gains on particular shares or funds may seem sensational, but they will have been achieved at a cost. And as investors in Asia and Japan can testify, things are very painful when it all goes wrong. Think about the level of risk you feel comfortable with and make sure your portfolio matches it.

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Most good financial advisers these days will try and establish your risk profile, then use various financial tools to appropriately match your risk profile to investments exposing the client to the different asset classes in the right proportion.

Never forget about inflation - you cannot see it, smell it or touch it, but inflation is all around us. If you are not protected from it, inflation will eat into your capital and income. Prices will go up over time and you should ensure that your investments and the income they produce have the ability to do likewise.

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Inflation is particularly hard on retired people who are locked into a fixed income. Use the "Rule of 72" test. If you divide 72 by the assumed inflation rate, it will tell you how many years it will take for your income to halve its purchasing power.

Don't be too active - the temptation to keep chopping and changing can be irresistible but is often a mistake. Give shares and unit trusts time to perform and avoid being too active. A study in the United States found that over a five-year period, the average household achieved a 17,7 percent annual return on their stock market investments, but the households that traded most actively made only 10 percent annually over the same period.

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It has been proved beyond reasonable doubt that unnecessary switching from one investment to another, especially chasing yesterday's winners, is one of the quickest ways to destroy wealth.

It's not timing that counts, it is time - as the legendary Wall Street investor Peter Lynch once remarked, "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves." Even if you get lucky, you will almost inevitably then miss out on the recovery. The average annual returns on Wall Street have been almost 18 percent over the last decade. But if you missed the ten best days each year, your return would have been only 13 percent.

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Use and understand the miracle of compound interest. The sooner you start with your financial and investment planning, the better.

For example, R10 000 invested and growing at 12% per year will be worth nearly R300 000 in 30 years' time. A delay of just 5 years, however, will cost you R130 000.

Take advice - research in America shows that investors who took advice achieved significantly better returns than those who made their own investment decisions. Very few people believe they can fix their medical, dental, legal or taxation problems themselves. Instead, they see a professional, such as a doctor or an accountant. With investments, it is no different. Long term financial security is a serious issue and should always be treated as such.

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It will pay you to choose your financial adviser carefully so that you receive appropriate, objective advice. Check up on qualifications and experience and whether they are bound by an ethical code of conduct.

Old Mutual's Personal Financial Advisers are employed and backed by recently launched Old Mutual Personal Financial Advice and are ideally placed to assist clients with their investment planning.

NOTE:
The above information is based on an article that appeared in Personal Finance on 26 January 2000 , and used with the kind permission of, and acknowledgement to, Personal Finance and Andrew Album, the London correspondent who wrote the original article. Comments were added.