We will keep this newsletter before the long weekend short and hopefully sweet.
Everywhere we go, we hear investors complain about the bad returns on their portfolios and their consequent anxiety. When we engage in conversation, it usually becomes clear that they do one of two things to cause their anxiety, namely:
- They compare their returns to a specific other investment that is doing very well at the moment; or
- They look only at their returns over the last three months; ignoring the longer term and the performance of the various components of their portfolios.
Fact is, there will always be some investment that does well at any given time. Do not consider only the current return on that investment, but also the risk you would be taking if all your money were invested in that one investment. It is only natural to feel nervous when some of your investments are not performing well, but there will always be good times and bad times.
One of the most important aspects of constructing and managing a successful long-term investment portfolio is called Strategic Asset Allocation (SAA). SAA is the strategy for matching your cash flow requirements to the appropriate asset class. Money you will need in the next year or two will be placed in cash and money you will need in 10 years’ time should be invested in shares. So, when you evaluate investment performance, always look at the performance of each of the building blocks of your investment individually.
Cash has been king over the past three months, so if you have had some bills to pay, you should have used the cash to pay the bills and left the shares alone. But, when you have to replace your car in 5 years’ time, the shares that are showing a negative return now should provide you with an inflation-beating return then.
- They compare their returns to a specific other investment that is doing very well at the moment; or
- They look only at their returns over the last three months; ignoring the longer term and the performance of the various components of their portfolios.
Fact is, there will always be some investment that does well at any given time. Do not consider only the current return on that investment, but also the risk you would be taking if all your money were invested in that one investment. It is only natural to feel nervous when some of your investments are not performing well, but there will always be good times and bad times.
One of the most important aspects of constructing and managing a successful long-term investment portfolio is called Strategic Asset Allocation (SAA). SAA is the strategy for matching your cash flow requirements to the appropriate asset class. Money you will need in the next year or two will be placed in cash and money you will need in 10 years’ time should be invested in shares. So, when you evaluate investment performance, always look at the performance of each of the building blocks of your investment individually.
Cash has been king over the past three months, so if you have had some bills to pay, you should have used the cash to pay the bills and left the shares alone. But, when you have to replace your car in 5 years’ time, the shares that are showing a negative return now should provide you with an inflation-beating return then.
