Investment Resolutions for 2017
Written by Adrian Meager, Head of Asset Management, Warwick Wealth
It is that time of the year again – monthly planners and 2017 diaries are being bought and new plans are being made. Time to add value to our life, get rid of bad habits and resolve to improve in all spheres of life. Yes, time to list those New Year resolutions and more importantly commit to execute them.
More often than not, the list begins with healthy eating habits, waking up early and exercising, reading often, eating out less and other such resolves to improve our overall health and lifestyle. Needless to say, our finances play an important part in contributing to a better lifestyle and a prosperous future. So, while we are at it, why not make some financial resolutions as well?
Here are some New Year Resolutions which will aid in achieving your financial goals in the long run.
1. Set clear goals – Setting some well-defined and measurable goals for how you spend, save and invest your money can make a big difference. They will help guide your decision-making and priorities throughout the year and assist with staying on track. Vague goals usually fail and make it hard to know when they are achieved. Set concrete goals and break them down into smaller, more attainable benchmarks, so you can regularly monitor your progress.
2. Make asset allocation a top priority – Research has shown how you invest your money between the different asset classes determines almost 90% of your investment returns. Successful investors spend more time analyzing which asset classes to invest in, and how much, than on which shares or bonds they should buy. A failure to diversify your investments is one of the main causes of underperforming portfolio returns. Spreading your investments across a range of asset classes is one of the best ways we know of to smooth your returns over time, to preserve your assets, and to generate real returns.
3. Diversify – You should diversify across asset classes (equities, bonds, cash, and property), geographies and not be only exposed to the Rand. Your specific mix should be tailored to where you are in your investing life-cycle and your individual risk profile. Having all your assets in one basket – South Africa – is risky. What if things don’t go well locally? A well-diversified portfolio should also have room for offshore assets, ideally in the developed world as South Africa is already an emerging market investment.
4. Don’t react to short-term market ups and downs – We live in a 24/7 media cycle, so we are constantly bombarded with news about global economic and market developments. While it is good to be aware of what is happening in the world, it is important to put things in perspective and focus on your long-term goals, rather than panicking and reacting to every bit of bad news. Share markets do go up and down from day-to-day and economies go through cycles.
5. Have a risk management plan – as an investor you cannot avoid risk, so it’s worth spending some time to understand how it relates to your portfolio and goals. Losing money is one of the biggest risks over shorter periods, which is why shares are more risky in the short term. Over longer timeframes, inflation is the key risk. This is when your investments cannot generate high enough returns to meet your longer-term goals. One of the most effective ways to manage risk is to diversify your portfolio across different asset classes and investments. The right mix will depend on your investment timeframe, risk profile and goals.
6. Rebalance your investments – Large movements in share markets can cause the asset allocation of your portfolio to shift away from your plan. You may need to buy, or sell, investments in specific asset classes to get things back on course. Successful investors regularly check their portfolio and rebalance if they have deviated from their set proportions.
7. Ensure your investments are correctly structured – Using the most appropriate product vehicle can make a big difference to your wealth. Holding assets in the wrong investment vehicle could, for example, result in a larger than necessary tax bill and make shifting assets more difficult. Your Warwick Wealth Specialist can help you decide the best investment vehicle for your needs.
8. Take the emotion out of it – This is more of a long-term goal. But when it comes to saving and investing, getting emotional is the number one detractor of good financial planning. Panic, fear, greed – all of these can make you abandon a solid, sensible plan in a flash. Overcoming this is very difficult. The first step is recognising that your emotions play a role in your investment decisions and planning for that eventuality. You could, for example, make it a rule that you cannot make a major decision without talking to your Warwick Wealth Specialist first. You could force yourself to wait three hours before making a change to your financial plan and spend that time reviewing your plan and analysing why you want to make the change. There are plenty of techniques you can use to reduce the impact that emotions have on your investment behaviour, provided you take the time to prepare yourself.
9. Give Your Portfolio the ‘Once Over’ – We recommend reviewing your portfolio with your Warwick Wealth Specialist every six months, or at least once a year. The purpose of this portfolio review is to systematically troubleshoot problem spots and identify changes you may want to make as part of your overall investment strategy.
So, this time around, resolve to manage your investments better, using the New Year Resolution tips. Correctly structured and correctly diversified investments portfolios will provide long-term capital growth and destress your life to a large extent. And, if you can follow the above resolutions, it should be a very prosperous and happy 2017 indeed.