The 25-year portfolio: your sure way to wealth

CLOSING in on Christmas, headlines such as “Five stocks for your Christmas socks”, “What to expect in 2022” and, a favourite, “You must own these stocks next year”, cover the pages, virtual or physical, of many a financial and investment publication.

Fascinating, especially given the overwhelming evidence no one will be able to predict which stocks will do well next year, or the next, or the next.

Unfortunately, these headlines draw eyes and clicks. It is a human tendency to want to get advice on what the future will hold – to be told which stocks will do the best next year, even if we well know the predictions will most likely be wrong.

Unfortunately for the stock pickers, fortunately for investors, it is not about the best return next year, or the next, or the next. It is about the best returns you can sustain over the longest period.

What if this year for Christmas you gave a gift to yourself? A gift of time. Some time to devote a few hours to what is often an uncomfortable topic, money and investing, and build a portfolio for the next 25 years.

Investing is often counter-intuitive when it comes to forecasting. The longer out your horizon, the more surety there is. No one has any idea what the broader stock market is going to return next year. But we can assume with high conviction the broader stock market will be a good option to grow your wealth over the long term. You get rewarded for taking on uncertainty, but I believe the uncertainty reduces and outcomes become more certain in the long run.

We have more of an idea what you will earn if your funds are in cash next year. But we also do know that if you keep your money in cash for the long term, there is a low probability that you will grow your wealth in excess of inflation. More certainty of returns here – that is why you do not get rewarded.

What we do know is that allocating 100% of your portfolio to stocks is also not the right answer to the investment allocation question for everyone. I do not know what your ideal equity allocation is because I do not know your background, life experience or your current situation. I do not know if you will get nervous and sell all of your equities when the market is down by a third during a crash. Research has shown that neither do you.

So what should your 25-year portfolio look like?

Successful long-term investing is about the best return you can sustain over the longest period. This is why selecting the right asset allocation in your portfolio is so important. You need an asset allocation that gives you the highest probability of achieving success over the long term. You need an asset allocation that you can sustain – in other words, leave alone in times of distress, so that your portfolio can do what it is supposed to do over the long term: grow.

And this is done optimally in collaboration with a professional adviser, rather than on your own.

Give yourself the gift of time this festive season. It is one of the greatest gifts you will ever receive. Spend less time on predictions of what 2022 will hold for your investments and wealth. Spend more time on you and what you want over the next 25 years, plan accordingly, with independent help, and enjoy peace of mind.

Hannes Viljoen, a Chartered Financial Analyst and Certified Financial Planner, is chief executive and head of investments at Kudala Wealth.