Junk Status And Your Investment

I wanted my first blog entry to explain the value of an independent Financial Advisor to a client’s portfolio. But here we are, downgraded to junk status by S&P and Finch and all of a sudden, investors are not sure which way to go.

In fact, I have seen investors switch out of funds, disinvesting, stopping regular contributions, hesitating where and in which funds to invest and then those investors who just did nothing. So, what is the right thing to do? My advice is to stop panicking and step back.

Statistics show the difference between the emotional investor who jumps ship on his investments or switches in and out of different asset classes when bad news hits, is worse off than the investor who merely waits it out and rides the wave. In fact, the investor who stuck with his game plan did better. Trying to time the market is a bad call, especially if it is not your field of expertise.

If you have received sound advice, have your funds split over different asset classes to spread risk, you can safely wait it out. What goes up must come down, but the inverse is also true. If you cannot stomach volatility of pure equities in your portfolio, then a Managed Balanced fund is the best place for you.

What is a Managed Balanced Fund?

1. Funds are split between Cash, Bonds, Property, Equity – local and offshore
2. Your funds are managed by a team of Managers
3. The Fund managers have a house view, which gives you an idea of what their approach is and what they hope to achieve
4. By adding Cash and Bonds to the spread acts as a hedge against volatility.

Fund managers decide (according to their mandate) the percentage split the collective funds will be allocated to in the different asset classes. Depending on where they see value, (local or offshore) and depending on the market conditions, will determine their decision to invest in heavy cash or more into equities or pretty much a balanced spread across the 4 major asset classes. This varies and the actual split can be seen on what we call a fund fact sheet.

The idea is to sit with your advisor once a year, discuss your goals and plans, decide on a plan and stick to it. Once you and your advisor choose the funds and decide on a yearly review date, you are better off letting the fund managers do the work for you. Sometimes you will be ahead and sometimes you will need to make a few adjustments (which should clearly be communicated by your advisor at your yearly review dates).

If you can’t decide whether to have some funds offshore, keep this in mind. The rand loses ground due to the difference in our inflation and that of the US. Ours usually being between 5% and 6% and theirs usually between 1% and 2%. Due to this difference, the rand will loose value over time. Putting some funds offshore over a long term is therefor always a good idea, but don’t forget our friend volatility. If you might need the cash at a moment’s notice, rather relook your strategy.

Buckle up, don’t panic, keep contributing to that investment (because prices are cheap now) and wait out the storm.

Regards, Lize Webb
Financial Adviser

For a more in depth look at your current portfolio or any advice, I can be contacted on 0845841158

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