Many clients pose this question to advisers. The simple answer is: your adviser does not know where you can achieve the best return, at this very moment. If he knew this, he would probably be very wealthy, and so would you. The fund or share that yields the highest return today could be the worst performer tomorrow. The reality is that advisers do not have a crystal ball to see what the future holds. They simply don’t know what is going to happen.
In the world of investments, the variables to consider are almost infinite. These include, but are not limited to: exchange rates, trade wars, political changes, global warming, unemployment, interest rates, equities, properties, bonds etc.
The world of investments truly is a minefield for the average investor. You need to consider a different perspective when trying to answer the question of where the best return for your investment will be, going forward.
We cannot consider returns in isolation. We also need to address the risk related to the investment or portfolio. Risk is probably as important as returns, yet investors seldom want to talk about it, probably because it is framed as a negative from an emotional point of view. When an investment does not grow, or delivers a lower-than-expected return, or even a negative return, the discussion on risk arises.
At that juncture it’s already too late. ‘Why was my money invested in such a high-risk asset class or investment product?’ This is the question often posed at this point.
As an investor, you need to understand that there usually is a correlation between risk and return. The higher the potential return of an investment, the higher the risk of losses. This risk can, however, be mitigated. Risk of capital loss can be mitigated by making use of a diversified investment portfolio.
The saying ‘don’t put all your eggs in one basket’ holds true in this case. A very good example of this is the Steinhoff debacle. If you had invested all your money in this single share, you would have lost almost all your capital. A diversified portfolio needs to ensure that your investment is spread over different asset classes based on your investment horizon and risk profile. Secondly, your portfolio should also include some offshore exposure. By making use of asset managers with a good investment philosophy and track record, you and your adviser will increase the chance of success over the longer term.
The second method of decreasing risk is linked to the time that you have available to stay invested.
If you remain invested in a well-diversified portfolio and ride out the market’s up and down cycles, your chances of achieving your investment goals are greatly enhanced.
The best return for your investment at this moment would be a well-diversified investment portfolio that fits your risk profile and needs from a return perspective, considering how much time you have available to stay in the market before you need access to your money.
The investment product you utilise needs to be free of bias, putting you, the client, first and needs to be flexible.