investing-nine-things-you-can-control Investing – nine things you can control

There are certain elements of investing that are worth spending your time and energy on.

Markets do what they do. They always have and always will. The reason we invest in them is to grow capital and, as a result, wealth. However, it isn’t always a comfortable relationship and the less you know, the more disconcerting it becomes.

When markets disappoint, investors wonder whether they should be switching, firing their adviser, disinvesting or listening to their neighbour’s hot stock tip. When markets are running, everyone wants to pile in – usually at the top.

What to do? None of the above... Focus only on the things you can control when you’re a long-term investor.

Here are nine of them.

1. Time

Commit to a time frame upfront and don’t change it. Stock market investing (as opposed to trading or speculating) is at a very minimum a five-year commitment. The stock market will deliver, but only over time. Why is this? In the short term, share prices are subject to volatility as a result of news flow, trading activity and short-term economic data. This is what causes the daily gyrations you see if you are watching share prices in real-time. Over the long term, the real value of the company will emerge as everyone involved in running or working for that company is incentivised to make that share price go up. This takes time.

2. Asset allocation

This goes hand in glove with TIME. How your portfolio is constructed and particularly the risk you can bear very much depends on the time you have. Short time frames (6 – 18 months) mean you are better off staying in cash or money market assets. Anything longer requires careful thought around the asset classes you’d like to invest in for a given outcome. To illustrate, if you are 32 and saving for retirement, you have all the time in the world and should construct an aggressive portfolio. If you are 63 and drawing an income from your portfolio, you need to have a smoother performance journey and therefore you’d be looking for a more cautious portfolio. There is an asset allocation to suit every goal and need. Understand what you need.

3. Fees

This goes without saying, keep them low. Fees you pay on an investment directly affect your net return, and the effect compounds over time. The less fees you pay, the more performance you get to keep.

4. The amount you invest

Yes, you do have control over this. If wealth is what you’re after, commit to the marathon and invest as much as you can. That doesn't mean it has to be a large amount, and it needn’t be in a share portfolio. Paying off your mortgage earlier is also an investment. The amount you allocate to your investment is unique to your circumstances. The point is to have a goal, have a plan and stick to it.

5. Advice

Don’t shy away from getting advice, especially if you are not comfortable with your level of investing expertise. Life is too complex to be an expert in everything so outsource the gaps. A good adviser should in fact keep you honest to every point in this blog article, which really is half the battle won in wealth creation. The market needs to do the rest.

6. Tax

Minimise it. Use your tax-free savings account. It may seem a trifling annual amount to some and an inordinately long time (15.15 years) to reach your lifetime contribution limit, but every tax cent saved is enhancing your investment return. Why wouldn’t you?

Maximise your retirement annuity contributions and save on the tax. Look at endowments for their tax benefits. These products have improved tremendously and are enormously helpful in tax planning. Consider high yield equity products if the risk profile matches yours. There are many ways to skin the cat. They all require thought and a time commitment but are worth it if you work them properly.

7. Have a plan

Yes, it sounds trite, but it’s true. Plan your money. You plan most other things, so why not your finances? This goes beyond a simple budget. Have short-, long- and medium-term goals. Understand what retirement may look like. Even if you’re slavishly contributing to your employer’s pension fund, understand how far this is going to get you when you’re 73. Saving and investing isn’t just randomly allocating some money to a unit trust or ETF you heard about at a braai and hoping for the best. It involves applying your mind to what you want and how you are going to get there. Spend the time planning. This too is an investment.

8. Avoid the noise

Do listen to it if you are trying to educate yourself and understand the intricacies of finance. Do not do a single Google search or listen to the radio after 18:00 if you are looking for a hot tip or guidance on what to do next. Popular media is full of opinions. Opinions are interesting and varied, they’re often partisan and inflammatory and they certainly are not meant to be taken as advice. “Doing what everyone else is doing” is also not advice or a plan. So, listen and read (widely) if you are genuinely interested, but know that emotions are a strong force for good and for evil and do not let them (and the noise) sway you from the seven points above - which are absolutely within your control.

In extreme cases, you may want to consult an adviser who can point out when you are knee-jerking instead of being thoughtful in your decision-making process.

9. Just start

If you had started something two weeks ago, you would be two weeks into it; better at it; along your path to achieving that goal. Need we say more?