De­ter­min­ing what works

Set­ting goals, choos­ing in­vest­ments care­fully, pay­ing at­ten­tion and pas­sion

Finweek English Edition - - MONEY CLINIC - JANET HUGO jhugo@hugo­cap­i­

PEO­PLE WHO have built up some wealth are some­times dis­dain­ful of in­vest­ment ad­vis­ers, unit trusts, fund man­agers, port­fo­lio man­agers, re­tire­ment an­nu­ities and so on. They ques­tion how the fi­nan­cial in­dus­try adds value. Do it your­self is per­sua­sive, es­pe­cially for peo­ple who are paid to know they’re right.

So how do you pur­sue in­vest­ing ex­cel­lence? Use some DIY and also use the su­perb in­vest­ing knowl­edge and skills out there in or­der to nar­row your choices. Okay, you prob­a­bly think you’ve heard it all be­fore: but re­mem­ber that start­ing with a strat­egy – at what­ever age or level or ex­pe­ri­ence – is vi­tal to achieve in­vest­ing ex­cel­lence. It in­cludes be­ing a tiny bit fru­gal and adding to in­vest­ments dur­ing the best earn­ing years to let com­pound­ing do its job and be­ing per­sis­tent, diver­si­fy­ing wisely and mon­i­tor­ing that things haven’t de­vi­ated too much from your orig­i­nal strat­egy. Few get it right: ac­cord­ing to an Old Mu­tual re­tire­ment fund sur­vey, no more than 6% of South Africans will be able to re­tire fi­nan­cially in­de­pen­dent.

Maybe the most im­por­tant part of your DIY is to pay at­ten­tion. Add some re­al­is­tic plan­ning in the be­gin­ning; then monitor your in­vest­ments closely and only make well-re­searched mi­nor ad­just­ments along the way. Es­tab­lish how much to in­vest, when – and why – and es­tab­lish what time pe­ri­ods and cap­i­tal growth goals are fea­si­ble. De­cide on your life’s mile­stones, in­clud­ing pro­vid­ing for a gor­geous daugh­ter’s uni­ver­sity and wed­ding and for other de­pen­dants’ needs.

The In­ter­net is a pow­er­ful in­for­ma­tion tool to com­pare funds, to com­pare strate­gies and in­vest­ment prod­ucts and to un­der­stand eco­nomic and mar­ket trends. In­vest­ing is about the world around us and as­pi­ra­tion; the stuff of life. As Al­bert Ein­stein said: “It’s not that I’m so smart, it’s just that I stay with prob­lems longer.”

As a wealth man­ager and ad­viser, much of my work in­volves at­tend­ing pre­sen­ta­tions by ex­perts, con­duct­ing re­search and meet­ing man­agers. In late 2007 and early 2008 I was concerned about sys­temic risks and com­pany earn­ings vul­ner­a­bil­ity. Our re­search showed it would be in the in­ter­ests of clients to fo­cus on pro­tect­ing cap­i­tal. Dave Fo­ord, who has more than 30 years’ in­vest­ing ex­pe­ri­ence and has seen many mar­kets change dra­mat­i­cally, warned mar­kets were top­pish (in hind­sight, they were: they topped in May 2008) and at the time I also no­ticed he not only talked about the re­search be­hind his views but that he’d also acted on his views by launch­ing the Ned­group In­vest­ments Sta­ble Fund. The fund man­date al­lows Fo­ord to take a low risk and low eq­uity ap­proach to the mar­kets.

De­cide what ques­tions to ask your ad­viser. How does the in­vest­ment man­ager plan to grow cap­i­tal dur­ing the cur­rent eco­nomic cli­mate and in the var­i­ous sce­nar­ios for fu­ture global en­vi­ron­ments? Is that the right fund or port­fo­lio to be in, ac­cord­ing to the risks and re­ward po­ten­tial of the strat­egy? How do risks and re­ward sce­nar­ios align to your goals? Is the fund man­ager or ad­viser hop­ing “the mar­ket” will de­liver the re­turns or does the man­ager have an in­formed opin­ion about risks and about what in­vest­ments can grow time ef­fec­tively – and why? View all your in­vest­ments holis­ti­cally: from the re­tire­ment an­nu­ity you started ages ago to your cur­rent re­tire­ment fund. Work with your ad­viser to cre­ate a per­sonal in­vest­ment strat­egy for you across all the prod­ucts you have.

Ef­fi­cient as­set al­lo­ca­tion is a big­ger value-add than choos­ing cheap stocks. Al­lo­ca­tion is com­plex and best left to your friendly in­vest­ment pro­fes­sional. But it boils down to be­ing over­weight in out­per­form­ing sec­tors and un­der­weight in un­der­per­form­ing sec­tors from ma­jor turn­ing points. Fund man­agers do it and some in­vest­ment man­agers do it. The right port­fo­lio man­date helps.

As in the prop­erty mar­ket, in­vest­ing in the right fund in­volves good lo­ca­tion and tim­ing, for value at the right price. What­ever the doubters say, the ef­fec­tive­ness of the mix of in­vest­ments or the theme in­vested in at any time (as­set al­lo­ca­tion) adds to value and to growth.

In­vest the time to find a fund man­ager or wealth man­ager who pays on­go­ing at­ten­tion. Af­ter all, re­turns that work need typ­i­cally at least five years to de­liver. And you only get a cou­ple of chances in a life­time.

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