Determining what works
Setting goals, choosing investments carefully, paying attention and passion
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.