Time-Tested
Investment Principles
Financial markets are not predictable or stable, they constantly evolve. It is for this reason
that investors should maintain a sound and disciplined approach to investi ng.
We believe the following principles remind long-term investors of the benefi ts of staying the
investment course by remaining invested in the markets. This fact sheet sets to explain
investment principles that have stood the test of ti me.
It’s not when, but if you invest that counts:
Any ti me is a good ti me to start investi ng
While no one can predict which investments will perform well and when, investors should be aware of market cycles and how events impact corporate performance, investor confi dence and ulti mately, investment returns.
Whatever the current economic climate, an experienced fi nancial adviser can
off er personalised guidance that combines knowledge from past business
cycles with analysis of factors currently impacti ng an investor’s portf olio.
Equiti es – Best Day
Recurring contributi on of R1000 is made at the lowest point of the index within a calendar year.
Equiti es –Worst Day
Recurring contributi on of R1000 is made at the highest point of the index within a calendar year.
Cash
Recurring contributi on of R1000 is made at on the 31st of December each calendar year.
Recurring investments R1 000
10 000 5 000 0 15 000 20 000 25 000 30 000 35 000
Equiti es – Best Day
Equiti es – Worst Day Cash (STEFI Comp)
2001/11/30 2005/11/30 2009/11/30
Assumpti ons:
Equity returns over the 10 year period represented by the FTSE/JSE All Share Total Return index where dividends are reinvested.Returns are illustrated before investment fees and it is not possible to invest directly in the unmanged index. The cash investment is represented by the STEFI composite index with all income reinvested. Past performance is not indicati ve of future returns. Investment period: 10 years ending 30 November 2011
Starti ng age 25 Starti ng age 35 Starti ng age 45
Annual investment R 5 000 Annual investment R 5 000 Annual investment R 5 000
Years Investi ng 40 Years Investi ng 30 Years Investi ng 20
Total Investment 200 000 Total Investment 150 000 Total Investment 100 000 Ending value at age 65 R 2 312 645 Ending value at age 65 R859 518 Ending value at age 65 R299 275
Assumpti ons:
Annual net return of 10% per annum aft er fees and tax. Investments made at the start of each year.
It’s ti me in the market, not market ti ming.
One key to success: pati ence and commitment
The decision to switch investment funds to seek improved performance with another doesn’t always result in improved performance. This example serves to illustrate that performance chasing for any investor can be a diffi cult strategy to execute.
Past performance is not a guarantee of future results.
Annualised total returns of the FTSE/JSE All Share Index
Dec 2001 - Dec 2011.
0
-5%
-10% 5% 10% 15% 20%
16.68%
Always Investsed Investsed (Less 10 best days) Investsed (Less 30 best days)
Investsed (Less 600 best days)
10.28%
1.74%
-7.05%
Assumpti ons:
Equity returns over the 10 year period represented by the FTSE/JSE All Share Total Return index where dividends are reinvested. Returns are llustrated before investment fees and it is not possible to invest directly in the unmanged index. Past performance is not indicati ve of future returns.
Switching investment funds to seek improved performance
doesn’t always result in improved performance
“
“
It’s ti me in the market, not market ti ming.
One key to success: pati ence and commitment
Why should you begin rand cost averaging now?
Rand cost averaging is a strategy that is:• Automati c – Transfer a set amount directly from your bank account on a monthly basis • Sensible– Systemati c investi ng allows you to avoid the temptati on of ti ming the
market, while allowing you to reduce your average cost per share • Aff ordable – Low monthly premiums
• Profi table – Allows you to buy more shares when prices are low
Because rand cost averaging involves regular investments during periods
of fl uctuati ng prices, you should consider your fi nancial ability to conti nue
investi ng when price levels are low. This approach reduces the eff ects of market
fl uctuati on on the average price you pay for your units. Most importantly, it
helps you maintain a regular investment plan. Such a plan, however, does not
assure a profi t and does not protect against loss in declining markets.
Recurring investment in a rising market
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total Cost / unit Invest R 100 R 100 R 100 R 100 R 100 R 100 R 100 R 100 R 100 R 100 R 100 R 100 R 1 200 R 29.76 Fund price R 24 R 25 R 26 R 27 R 28 R 30 R 31 R 33 R 34 R 33 R 36 R 37
No of Units 4.167 4.000 3.846 3.704 3.571 3.333 3.226 3.030 2.941 3.030 2.778 2.703 40.329
Recurring investment in a variable market
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total Cost / unit Invest R100 R100 R100 R100 R100 R100 R100 R100 R100 R100 R100 R100 R10200 R22.20 Fund price R24 R22 R27 R18 R16 R19 R21 R23 R25 R29 R25 R24
No of Units 4.167 4.545 3.704 5.556 6.250 5.263 4.762 4.348 4.000 3.448 4.000 4.167 54.209
Recurring investment in a falling market
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total Cost / unit Invest R100 R100 R100 R100 R100 R100 R100 R100 R100 R100 R100 R100 R1200 R13.53 Fund price R25 R22 R20 R19 R18 R16 R15 R13 R12 R10 R9 R7
No of Units 4.000 4.545 5.000 5.263 5.556 6.250 6.667 7.692 8.333 10.000 11.111 14.286 88.703
Lump Sum investment
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total Cost / unit Invest R1200 R1200 R24.00 Fund price R24
No of Units 50.00
Save a litt le, save oft en
Rand cost averaging or every rand counts
Take advantage of market fl uctuati ons – without worrying about ti ming your transacti ons – by rand cost averaging. With rand cost averaging, you budget a fi xed amount of money to invest at regular intervals. By implementi ng this strategy, you buy more units when prices are low and fewer when prices are high, generally resulti ng in a lower average cost per unit.
Diversify your portf olio: Spread your money across a
variety of investments – equity, fi xed income and cash
The old saying about “not putti ng all of your eggs in one basket” is especially true when it comes to investi ng. A properly diversifi ed portf olio should include a range of asset classes from both South Africa and abroad: equiti es of diff erent sectors and capitalisati ons; bonds with varying maturiti es; and even cash instruments like money market funds.
Diversifi cati on can help reduce overall portf olio risk – if a single investment is not performing well, its performance should be balanced by other investments which are doing bett er at that ti me. Diversifi cati on does not protect an investor from market risk and does not ensure a profi t.
Plan your asset allocati on – it’s key to helping you
achieve your goals
Asset allocati on is the process of developing a personalised, diversifi ed investment portf olio by strategically mixing diff erent asset classes in varying proporti ons.
When working with your fi nancial adviser to plan your asset allocati on, make sure to discuss your:
• Goals: Saving for reti rement, funding a child’s higher educati on, buying a new home
• Time Horizon: How long your investments will be working toward your goals
• Risk Tolerance: How comfortable you are with potenti al fl uctuati ons in the value of your investment portf olio
Diversifi cati on can
help reduce overall
portf olio risk
A Diversifi ed
portf olio
Bonds 35%Commoditi es 20%
Cash 10%
Real Estate 20% Equity 10%
Emerging Markets 5 %
The idea behind rebalancing is to get back to the original allocati on that was developed with your Goals,
Time Horizon and Risk Tolerance in mind.
How do you know when its ti me to rebalance?
Review your asset allocati on regularly with your fi nancial adviser to ensure your investments are in line with your needs and expectati ons – and invariable market shift s.
All investi ng involves some degree of risk, whether it is associated with market volati lity, purchasing power or a specifi c security. The equity markets are volati le, but not all stocks are equally volati le. Fixed income investi ng entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall.
For more information on Discovery Invest, contact your financial adviser.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell investment funds.
Rebalance to stay on track. Markets change, and your
portf olio should too
Once you’ve worked with a fi nancial adviser to decide which investments best suit your portf olio, it’s important to revisit those decisions. Markets change, and rebalancing helps you maintain your target asset allocati on. If the value of an asset class in your portf olio increases, the rati o of the other asset classes could change. Over ti me, you could end up with more risk than you realise, if your assets aren’t adjusted periodically to ensure they sti ll meet your target allocati on.
Rebalance your portf olio
Equity 35%
Equity 20%
Bonds 5% Commoditi es 60%
Bonds 5%
Commoditi es 75%
To get back to your original allocati on, sell some commoditi es
and use the profi t to buy Equiti es.
The market drift s and stocks
outperform.
Out-of-balance portf olio
Target allocati on
