Wealth Management

Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. – Warren Buffet

 

Finsmart Asset Management implements long term investment and financial planning strategies. Your financial needs and goals is a priority to us and we will recommend strategies that will help you to access the most appropriate financial solutions to suit your needs.

Wealth creation takes time and should be aligned with appropriate risk. It is important to us that our clients understand our focus on long term investment combined with long term financial planning strategies. This will ensure that you get the best advice and reach your financial goals.

Our philosophy.

“Time is money” - and money gives you time. These two factors co-exist in an investment environment and should be extremely beneficial to you when you have both of them. (This also happens to be true in life.) Put another way if you run out of either one of them or even worse both of them at the same time, you will find yourself in bit of a predicament.

Capital Growth = Compounding + Time in the market + Investment Strategy + Appropriate Risk

Investment risks:

·         Not being in the market.

·         Investing for the short term.

·         Incorrect asset allocation.

·         Inflation

The power of compounding is critical to long-term wealth creation. To show the effect that compounding has over long periods of time, consider the following scenario: 

Two investors, A and B, started their careers on 1 April 1970 when both were 21. Investor A decided to invest R100 per month in the domestic equity market (FTSE/JSE All Share Index) from age 21 to 31. At 31 she elected to stop her monthly contribution, but left her accumulated capital in the equity market until retiring on 31 March 2014 at the age of 65. Investor B also invested R100 per month in the same equity market, but only started on 1 April 1980 at age 31. Investor B then continued to diligently contribute R100 per month until he also retired on his 65th birthday on 31 March 2014 (i.e. contributing for a period of 34 years).     

 Source: Coronation Fund Managers                                                                            

 

Investor A

 

 

Investor B

 

Capital at age 65

 

 

Capital at age 65

 

R14 034 204

 

 

R1 956 146

 

 

Enough time in the market reduces your investments risk. Time also ensures that you will have money in the future. Equities carry inherent risk, this is also known as volatility. Volatility is merely the percentage by which your investment increases or decreases.

Example:

 

Return year 1

 

 

12%

 

Return year 2

 

 

-1.5%

 

Return year 3

 

 

4%

 

The smart investor understands that volatility creates investment opportunities to invest when prices are discounted and to remain invested in the market when they experience downward volatility. Volatility should then be understood as fluctuations when markets go up as well as when markets do go down.

Asset Allocation

The Smartie box asset allocation will only leave you with the feeling of “whatalotigot”.

  • Asset allocation is the most important decision that you make when investing. It makes sense to leave the asset allocation to your asset manager and fund choices to your financial advisor who has the appropriate skills and experience and to hold them accountable for those decisions. The smart investor also understands that listening to noise in the market and making decisions based on hearsay can impair possible wealth creation.
  • Instead of chopping and changing from one investment fund to another based on past performance, most of the time it really is best to make a long-term commitment to your chosen fund.
  • When you analyse the chart above, there is no guarantee that a fund / asset class which has performed well in the past will do so in the future. Patience and commitment are key to building up a successful investment portfolio over time.

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 five years. – Warren Buffet.