So the first thing to get right is to just start your investment programme. With as little as R500 a month and some commitment, you are already an investor.
The secret to investing
The answer to what makes an investment programme work well is, quite simply, time. And that requires one to be patient.
The patient investor is one who ends up with two very significant benefits.
First, it allows the power of compounding to work in their favour. Compound growth is an incredibly powerful force. Given that our brains are not wired to think in exponential terms, the power of compounding is best illustrated by way of an example.
Say you invest an amount of R1,000 today and earn a return of 10% per year. After the first year of your investment, you can expect to earn a return of R100, and your investment to be worth R1,100. If you are willing to wait for a period of 10 years, your initial investment would have grown to more than R2,500; to nearly R8,000 after 20 years; and in 30 years’ time, to somewhere between R17,000 and R18,000 at that assumed rate of return of 10%. This is an extraordinary acceleration in the growth in your capital for those who are willing to be patient.
The second major benefit that the patient investor obtains is the ability to take on more risk. Because you have time on your side, your investment programme has time to recover from the variability in returns that may occur in the short term. By taking on more risk, you end up with a higher expected return. In turn, this higher expected return accelerates the process of compounding that will result in even better growth over time.
Choosing the right fund
Choosing the right fund can be quite a daunting decision as the investor needs to weigh up the different asset classes (e.g. shares, listed property, bonds) as well as where those asset classes are located (in South Africa or abroad).
However, a simple way for investors to effectively implement an investment strategy is to invest in a multi-asset fund. Multi-asset funds have the ability to invest across all the different asset classes. There are also different types of multi-asset class funds with different risk profiles and different recommended investment time horizons.
Effectively, the great benefit of investing in these funds is that investors don’t have to worry too much about how market conditions are changing or where opportunities are arising. They can focus on what they know and what they can control (which is their investment needs), while leaving the implementation (i.e. the road to meeting those investment objectives) to the professionals.
Investment do’s and don’ts
There are many mistakes that may hamper us from achieving the best possible investment results over time. Being impatient, and forgetting that it can be really hard to be a committed long-term investor, are probably the biggest. This is especially true if the most recent calendar year was one in which the investment returns that you were hoping to achieve did not realise.
When you find yourself in such a situation, it is incredibly easy to capitulate. However, by giving in to such a knee-jerk reaction, you may end up selling low, only to possibly re-enter the markets at a later stage when investment returns have already improved (and you end up buying high). You also interrupt the process of compounding, and as a result your investment programme may turn what was potentially a temporary setback into a permanent loss of capital.
The importance of advice
It is important to highlight that if you are in any way uncertain about investing, it would make sense to obtain expert advice. The more complex your portfolio, or requirements, the more likely it is that you will benefit significantly from advice.
From the time it launched 25 years ago, Coronation has been working every day, through the highs and lows, to earn the trust of their clients by making their money work hard for them.
From humble beginnings in 1993, Coronation is now a leader in the investment industry, managing the long-term savings of millions of South Africans.
Coronation has a range of South African and international funds that match the majority of investor needs.
The funds share the common Coronation DNA of a long-term focused, valuation-based investment philosophy but each fund helps you achieve different investment goals whether it be long-term growth, growth and income, or income only. DM
To find out which fund is right for your own investment objectives, visit the Coronation website
Floyd Mayweather was once challenged by 50 Cent to read a single page from Harry Potter.