Investing can be tricky.
As Benjamin Graham once profoundly exclaimed, “Investing is simple, but not easy”.
If he’d lived in today’s digital world, I wonder if he’d still stick with that statement.
There’s so much information out there it’s becoming harder and harder to focus on the right elements when it comes to your portfolio.
Websites, manuals, TV channels, analysts, books, videos…
The list is endless!
Where do you look, what factors do you need to consider?
Today I’m going to cut out all the noise for you, because you only need to consider three things before you make an investment decision.
Let me show you.
The three factors you need to consider to improve the quality of your portfolio
Quality Factor #1: Time
Lets first look at the definition of ‘time horizon’.
It’s defined as the length of time over which an investment is made or held before it is liquidated.
This is extremely important when making investment decisions and choosing asset allocations.
So, when investing on the stock market you should have a medium to longer term view.
This ranges from 3 to 5 years, and upwards.
Remember that you’ll only realize your losses should you liquidate your investment in a downward trend market.
Take it from warren Buffett:
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for the next five years.”
Quality Factor #2: Return
This is your return that you receive on your investment.
This is the reward for not consuming your savings immediately and they can be exceptional.
Lets have a look at the returns the FTSE JSE all share and top 40 delivered in the last 10 years:
The above table shows that spending time in the market can deliver exceptional returns on your investment.
Sure, past performance is not an indication of future performance, but it does confirm that if you spend time in the market rather than trying to time it you’ll find the success you’re looking for.
Also keep in mind that your investment should always beat inflation (which ranges between 4-6% for the last 10 years).
And don’t forget, with increased risk comes high reward, which brings us to our 3rd factor.
Quality Factor #3: Risk
Higher risk can lead to increased returns.
For example the stock market delivers exceptional returns when compared against cash investments, but it comes with an increased risk.
However investors with a longer time horizon will be able to take on more risk.
This is confirmed by our FTSE 10 year return (See the table above).
During the past decade, only 2008 was a negative year.
Sure, -23% is a loss, but don’t forget that was during one of the biggest crashes in recent history.
And if you’d kept in it for the long term you’d have regained all of those losses and more the following year.
For asset allocation to work you need time for the asset classes to “do, what they must do”.
The chart above indicates that if you’ve spent only one year in the market, your biggest gain would have been 52.6% and your biggest losing year would have been -26.5%.
This volatility is however reduced by spending more time in the market.
Have a look at the 10 year point and onwards, you would’ve experienced no negative returns on a rolling basis.
What you need to do next…
If you’d invested in the FTSE JSE top 40 tracker, you would’ve enjoyed a cumulative return of 193.7% over that 10 year period.
Sounds good right?
What if I told you there was a way to outperform that figure?
You see, the top 40 index is a basket of the biggest 40 companies on the JSE and ranges from various companies in the retail space to as far afield as resources.
By investing in selective stocks with exceptional fundamentals you could outperform the JSE Top 40 index.
You just need to know where to look…
And that’s what I do at Vunani Private Clients. So if you’d like to find out a little more about which specific stocks you can look at to make this happen why not get in touch with me today.
Here’s to profitable trading.
Private Client Trader | Vunani Private Clients
011 384 2922