Share

Investment 101

A Fin24 user is looking for the best investment option. He writes:

What are the best investment options I can make?

Marius Fenwick, chief operating officer of Mazars, responds:

Without knowing your personal circumstances, an exact recommendation is not possible.

I will, however, try and guide you by referring to basic investment principles.

Firstly, you must determine what the objective of the investment is and over what period you wish to achieve the objective.

The longer the term of the objective or investment, the more aggressively you can invest.

This means the longer the time horizon, the more exposure you can take to growth assets like shares and listed property.

The shorter your investment term, the less exposure you should take to growth assets.

The term or duration of investments can basically be divided into four categories:

Short-term

Anything less than one year. In this case funds should be kept in cash - preferably a unitised money market.

Medium-term

From one to three years. Here exposure to growth funds should be limited to around 40% and offshore exposure can be included up to around 25%.

Your stable funds or low equity regulation 28 funds are typically what can be used here.

Long-term

Between three and five years. Exposure to growth assets should be increased, but not exceed 75% and offshore exposure could be increased to around 40%.

In this case balanced funds or high equity regulation 28 funds could be used.

It will also be advisable to add an offshore multi-asset managed fund that has pure offshore exposure with around 20% of your funds.

Ultra long-term

Five years plus. Funds allocated to an ultra long-term investment strategy can be invested aggressively.

The longer the term the more aggressively you can invest, even more so if the investment is made by regular monthly contributions.

Here 100% of the portfolio can be invested in growth assets, while offshore exposure can also increase from 40% to 60%, depending on the term of the investment.

Here we will typically consider equity unit trusts, both locally and offshore, in a combination that suits the client’s term of investment and risk profile.

Basic points to remember:

- The main objective of investing must be to beat inflation over time. It is unlikely that after tax cash will beat inflation;

- The higher your expectation of return, the more volatility you will encounter in your portfolio;

- The higher your exposure to growth assets, the more volatility you will encounter;

- Offshore investing adds to volatility as a result of currency fluctuations;

- There is a distinct difference between risk and volatility. Risk is the chance of incurring a permanent capital loss.

Volatility is the amount that your investment will fluctuate and can be upward and downward;

- Most importantly: Do not change your objective once you start investing. If markets correct and the value of your investment moves down (volatility), remain invested and continue to invest.

The biggest contributor to underperformance of investors' portfolios is erratic behaviour by buying and selling units when they believe the market is cheap or expensive.

The best and proven strategy is to remain invested at all times.

- Determine your risk adversity. At what stage will you become uncomfortable when you investment portfolio starts showing negative returns?

This is different for all people and your investment portfolio must match your volatility comfort level. We generally refer to this as your risk profile.

I hope this will assist you with your investment planning.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.97
-0.2%
Rand - Pound
24.06
+0.2%
Rand - Euro
20.57
+0.1%
Rand - Aus dollar
12.36
+0.5%
Rand - Yen
0.13
+0.7%
Platinum
900.98
-0.2%
Palladium
1,000.76
-0.5%
Gold
2,154.33
-0.3%
Silver
24.93
-0.5%
Brent Crude
86.89
+1.8%
Top 40
65,711
-0.8%
All Share
71,937
-0.7%
Resource 10
52,899
-0.8%
Industrial 25
99,362
-1.1%
Financial 15
16,590
-0.2%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders