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Ten rules for successful investing

Long-term investing in a short-term world.

Long-term investing in a short-term world can be incredibly challenging. With very little designed to last the distance (think smart phones, appliances and children’s toys), developing a healthy mindset towards remaining invested for a period of thirty years or more can be considered a modern-day craft.

Appreciating the benefits of investing for the long-term means disassociating from our world of instant-everything, and paying attention to these ten rules for successful investing:

Know what you are working towards

You cannot reach a goal you have not set and, in the absence of recorded goals, it is difficult to find the incentive to invest. Set aside the traditional view of retirement and dare to re-imagine a vibrant retirement that may involve a combination of work, play, travel and entrepreneurial adventures. Set aside time with your partner to record your individual and joint retirement goals with a view to achieving the milestone of financial freedom rather than a pre-determined retirement age. Be creative!

Seek the advice of an independent advisor and pay close attention to fees

Armed with your goals for a financially independent future, seek the counsel of an unquestionably independent financial planner. Any financial adviser who is tied to a particular product or investment house or who is remunerated with high upfront commission remains conflicted in their ability to dispense truly independent, fee-based advice. At the outset of discussions, obtain full transparency on all fees that you would be charged on investments, including platform fees, administration fees and advice fees, using 1% per year of assets under advice as a market-related benchmark.

Understand the psychology of long-term investing

Our natural inclination as humans is to seek more information, look for investment patterns and market trends, and compare options to the point of inaction. These same human qualities which we rely on in the right circumstances can also be our greatest liability when investing. Emotions such as fear and greed unfortunately play a huge role in long-term investing, especially in uncertain political and economic times. Time and temperament remain two of the most important traits of a prudent long-term investor. Refrain from putting your emotions in charge of your finances.

Understand how markets operate

An independent adviser should provide investor education to any first-time investor to ensure they fully understand the nature and mechanics of investment markets. Financial markets fluctuate over time in response to social, political and economic events, and long-term investors need to be at peace with this inevitability. Equity investments are, by their very nature, more volatile than other asset classes such as cash and bonds, and investors should be advised to accept significant short-term fluctuations in the value of their portfolios. It goes without saying that past share performance is no guarantee of future performance, but it is worth remembering that stock markets have proven their resilience even in times of dramatic political and economic turbulence.

Know the different investment vehicles available to you

Investing for retirement can be a confusing space to navigate as it is a highly regulated industry. Funding for your retirement can be done through numerous investment vehicles including pension funds, provident funds, retirement annuities and discretionary investments. Selecting the most appropriate vehicle, or combination of vehicles, in which to invest is dependent on numerous factors, including tax implications, withdrawal rules and one’s liquidity requirements in retirement. Our advice is to seek professional financial and tax advice before committing to any compulsory retirement fund. 

Review your investments regularly, but don’t track them daily

If you’re investing for the long-term, our advice is to review your investments less frequently to avoid panic and anxiety. Human behaviour is such that our response to bad news is more emotionally heightened than our reaction to good news, which makes tracking one’s long-term investments on a daily basis is a counter-productive activity. Agree upfront with your financial adviser how often you wish to review your investments (preferably quarterly or annually), and stick to the arrangement. Anything that happens in between your reviews should be considered noise.

Consider a multi-manager approach

Portfolio management and the selection of underlying investments is a uniquely specialist field, and one that requires an enormous amount of investment capability, research and skill – which is the expertise of discretionary fund managers (DFMs). Rather than adopting a single manager approach, investors are able to appoint a DFM to manage their investment portfolio in accordance with a specific mandate. The appointed DFM will decide on an appropriate asset allocation (mix of local and offshore equities, cash, bonds and property) as well as select the unit trusts used to express that asset allocation. The blending of specialist managers within asset classes as well as having experts managing the investor’s overall asset allocation, results in a huge amount of professional resources working on each client’s portfolio.

Don’t speculate or time the markets

Predicting the future is not a skill required for long-term investing. Avoid succumbing to FOMO (the fear of missing out) by ignoring the so-called ‘hot tips’ and ‘sure-thing’ advice dispensed by market speculators. Their aim is to make quick money every once in a while. Your aim is to stay invested in a portfolio that will consistently out-perform the market over the longer-term.

Find the balance between living now and saving for the future

Many investors feel conflicted between living in the present and planning for a secure future and, although money is important for happiness, it is essential to work towards finding and maintaining the balance. Finding that balance involves what is referred to as the ‘eat well, sleep well’ test – ensuring that your investments are not exposed to risk that keeps you awake at night whilst still targeting the returns that you need to fund your desired lifestyle.

Understand your tolerance for risk

Risk tolerance is an area of financial planning that your financial advisor should be able to guide and mentor you on. The risk that your investments need to be exposed to is a fine balance between the returns your money needs to achieve in order to reach your goals, your liquidity requirements in retirement and your personal propensity for taking risk. There is no point investing in a higher risk portfolio if the risk exposure is affecting your ability to contain your emotions.

There will always be peripheral investment noise, short-term market fluctuations and over-zealous market speculators promising a ‘sure thing’, but the fact remains that there should be nothing exhilarating about investing for the long term. As Paul Samuelson once said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”.

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Craig Torr

Crue Invest (Pty) Ltd


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