With all the goings on, in the investment world, I have found that we need to keep the human “greed” emotion in check. Also we need to take cognisance of what is happening in the investment world. Peer pressure and following the latest top flying fund may well be to the investors detriment, where the ability to time the market is less important than time in the market. Long term strategies with realistic goals and stepping stones along the way in terms of a person’s overall understanding that investing is for the long haul. There will be peaks and valleys along the journey but those who stay committed enjoy the fruits of their labours.
Below is an article, referring to ‘Alpha’. Alpha is an investment term where Asset Managers provide returns or outperformance compared to their benchmark. Investopedia provides the following definition:
A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.
Expectation is yet another human emotion and the author provides a historical perspective where we can note what has taken place over the past ten years and take the learnt knowledge into the future.
Thanks to Matthew de Wet – Head of Investments for the article.
This is some great insight into investments – Thanks to Moneyweb for the article.
“The biggest barriers to retirement planning, beside the inevitable, unpredictable and uncontrollable changes in the investment environment, are people’s stubborn belief that they know better, a prevalent culture of immediate gratification and a tendency to procrastinate,” says Chris Benfield, CEO of Hollard Investments.”
The attached article was recently in the press and shows that the need for life cover is not static but evolves as circumstances change in our lives.
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The key to success in investing is to know yourself and invest within your investing capabilities and within your emotional capacities.
Burton G Malkiel and Charles D Ellis, The Elements of Investing
If you overestimate how well you really understand an investment, or overstate your ability to ride out a temporary plunge in prices, it doesn’t matter what you own or how the market does. Ultimately, financial risk resides not in what kinds of investments you have, but in what kind of investor you are.
Jason Zweig, writing commentary in The Intelligent Investor
As economist and Nobel laureate, George Akerlof, points out: “Individuals’ decisions are driven not only by idiosyncratic tastes, but also by internalised social norms.” The implicit desire for conformity, acceptability and social identity can powerfully affect decision-making. In financial decision making, social context and emotions matter. It is far from a rational process.
Alexander Forbes Benefits Barometer 2014
We need emotions to make decisions, but minimise their influence. Franco Busetti, The Effective Investor Take financial action when calm. When was the last time you made a great financial decision when feeling scared, guilty or vengeful?
Vangile Makwakwa, Heart, Mind & Money
The standard economic theory of saving for retirement is both elegant and simple. People are assumed to calculate how much they are going to earn over the rest of their lifetime, figure out how much they will need when they retire, and then save up just enough to enjoy a comfortable retirement without sacrificing too much while they are still working. As a guideline for how to think sensibly about saving, this theory is excellent, but as an approach to how people actually behave, the theory runs into two serious problems. …It assumes people are capable of solving a complicated mathematical problem in order to figure out how much to save…(and) it assumes that people have enough willpower to implement the relevant plan.
Richard H Thaler and Cass R Sunstein, Nudge
These need to be taken into account when looking at an investment product. When considering buying a dress or suit, you would ask yourself some basic questions, such as “What do I need it for?” (wedding or business function) and “How long should it last?”…In the same way there are questions you should ask yourself about what it is you need from an investment. Jillian Howard, The best pocket guide ever for wealth building investment My advice to any investor is firstly to keep it simple; always start with the end in mind, decide how much risk you are comfortable with and set your investment objective accordingly, making sure that your portfolio is adequately diversified and in line with your risk expectation.
Mark Thompson, Stay Ahead
When you go on a journey, you have a choice as to your mode of transport. Some people prefer to take a leisurely drive in their antique convertible, with Sunday lunch in the countryside; others will jump onto their mountain bikes and yet others prefer to hike….The world of investments is no different. There is no ‘one size fits all’ vehicle. You need to understand your options in order to make the right choices.
Sunel Veldtman, Manage your Money, Live your Dream
The industry is concerned with member inertia and apathy as far as retirement goes. The indelible insight is that it does not require life-altering behavioural changes to realise your financial retirement goals. In fact, perhaps just a simple action from each member…by starting to save for retirement early, is really all that’s required.
Danie van Zyl and Viresh Maharaj, Sanlam Employee Benefits 2014 Benchmark Survey, Research Insights Report
Societies crumble and wealth is destroyed. If you are going to compound, it is important to compound positive numbers. ..In investing, the errors come fast and furiously.. You need to be able to recognize mistakes early and then act to limit the damage.
Dave Foord, Time in the markets
Although Humans are not irrational, they often need help to make more accurate judgements and better decisions, and in some cases policies and institutions can provide that help. . …There are informed and unintrusive ways to provide that help. Daniel Kahneman, Thinking, Fast and Slow Each individual must walk their own road to financial freedom, but the government, employers, financial services companies, trustees and unions can build better roads and offer roadside assistance.
Alexander Forbes Benefits Barometer 2014
Successful investing is not a difficult business to understand, but it is very difficult to implement in practice. … Great financial advisors have the ability to help their clients deal with the emotional aspect of investing, as they can coach them through the bad times and manage their irrational expectations in the good times. Warren Ingram, Become your own Financial Advisor Retirement fund members still prefer to speak to a qualified professional for advice about their decisions.
Sanlam 2014 Benchmark Survey, Research Insights Report
The events surrounding African Bank has been widely publicised over the past week, and the bank was placed under curatorship by the SA Reserve Bank on Sunday the 10th of August 2014.
If you would like to read more about the implications form this news, please click on the links below.