It is important to establish a strategy and investment plan with investors to achieve their objectives and understand their individual circumstances and needs.
Following these tried and trusted investment principles, will have you well on your way to achieving your investment goals:
Take a long-term view to create wealth
To create wealth, you need to take a long-term view to investing.
The longer funds are invested, the greater the benefit of compounding is on the ultimate value of the investment. This applies to both interest bearing and equity related investments.
You can benefit from investing regularly over time
Many investors do not want to invest when markets decline or are volatile, preferring to wait for more positive conditions. Unfortunately, the best time to invest can only be determined with hindsight, and the longer investors delay, the more they will need to invest to achieve their financial goals. Once you have determined your financial goals and plans to achieve these, volatile markets should not stop you from taking action. In fact, by investing on a regular basis, you may benefit from rand cost averaging. This means that if you invest steadily and regularly over a period of time, downward market trends are an opportunity to buy units or shares at a lower price, which may benefit you in the long term.
Use your risk profile to choose your investment and then stick to it
Whatever investment strategy is chosen, it has an expected risk (as measured by the volatility of returns from month to month) and return profile. When you choose an investm
ent it is important that you understand:
• your tolerance for short-term volatility
• your investment time horizon
• the long-term return you hope to achieve.
Investing in different asset classes will reduce investment risk. It is important for you to select an asset mix appropriate to your investment objectives and risk profile. This will allow you to achieve the long-term investment returns you expect within acceptable levels of short-term volatility. Risk profiles range from conservative to aggressive.
Invest in a geographically diversified mix of assets
Just as different asset classes perform differently over time, so do different markets. By investing in a geographically diversified portfolio, investment risk is reduced, thereby enhancing the return per unit of risk.
Don’t chase the best performing asset classes
Different asset classes have different risk reward profiles. Investing purely in equities may produce better long-term returns than cash and bonds, but it also results in a greater probability of negative returns in the short term. If you try to chase the ‘flavour’ of the month or year, the chances are that you have already missed the best performance and your investment will probably under perform in the short term.
By investing in a balanced mix of asset classes and sectors, investment risk is reduced and you get exposure to asset classes and sectors before they become the ‘flavour of the month’.
Don’t try to time the market
All investors want to ‘time the market’ by investing when markets are low and disinvesting when they are high. Research has shown that very few people get this right. Rather than try and time the market, you should develop a long-term investment plan and stick to it.
Following these tried and trusted investment principles, will have you well on your way to achieving your investment goals:
Take a long-term view to create wealth
To create wealth, you need to take a long-term view to investing.
The longer funds are invested, the greater the benefit of compounding is on the ultimate value of the investment. This applies to both interest bearing and equity related investments.
You can benefit from investing regularly over time
Many investors do not want to invest when markets decline or are volatile, preferring to wait for more positive conditions. Unfortunately, the best time to invest can only be determined with hindsight, and the longer investors delay, the more they will need to invest to achieve their financial goals. Once you have determined your financial goals and plans to achieve these, volatile markets should not stop you from taking action. In fact, by investing on a regular basis, you may benefit from rand cost averaging. This means that if you invest steadily and regularly over a period of time, downward market trends are an opportunity to buy units or shares at a lower price, which may benefit you in the long term.
Use your risk profile to choose your investment and then stick to it
Whatever investment strategy is chosen, it has an expected risk (as measured by the volatility of returns from month to month) and return profile. When you choose an investm
ent it is important that you understand:• your tolerance for short-term volatility
• your investment time horizon
• the long-term return you hope to achieve.
Investing in different asset classes will reduce investment risk. It is important for you to select an asset mix appropriate to your investment objectives and risk profile. This will allow you to achieve the long-term investment returns you expect within acceptable levels of short-term volatility. Risk profiles range from conservative to aggressive.
Invest in a geographically diversified mix of assets
Just as different asset classes perform differently over time, so do different markets. By investing in a geographically diversified portfolio, investment risk is reduced, thereby enhancing the return per unit of risk.
Don’t chase the best performing asset classes
Different asset classes have different risk reward profiles. Investing purely in equities may produce better long-term returns than cash and bonds, but it also results in a greater probability of negative returns in the short term. If you try to chase the ‘flavour’ of the month or year, the chances are that you have already missed the best performance and your investment will probably under perform in the short term.
By investing in a balanced mix of asset classes and sectors, investment risk is reduced and you get exposure to asset classes and sectors before they become the ‘flavour of the month’.
Don’t try to time the market
All investors want to ‘time the market’ by investing when markets are low and disinvesting when they are high. Research has shown that very few people get this right. Rather than try and time the market, you should develop a long-term investment plan and stick to it.
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