Financial markets go up and down. By now, we all know that – what we really expect from fund managers is to catch most of that performance, and never seriously underperform. However, the unfortunate reality is that many investors never get the full performance of their selected manager – because they frequently panic and switch between asset classes and fund managers.
Anne Cabot-Alletzhauser, MD of multimanager Advantage is fond of pointing to research which shows that most capital erosion is accomplished by switching assets and funds, by investors chasing the latest “top performing fund”.
She also points out that the bulk of performance comes from correctly choosing the right asset class (equities, bonds, property or cash) rather than from selecting a “good” fund manager.
Reinforcing this view, Trevor Abromowitz, head of Alexander Forbes
Asset Consultants, says: “Take, for example, the switching behaviour of members of South African retirement funds. In October 2008, the members’ switching rate was approximately 20% – following the 10% fall in markets that month – a tenfold increase relative to the 2% switching rate six months previously in April 2009 when markets were growing steadily and everything was running according to plan.” The problem is exacerbated as the evidence shows that not only do we switch out at the wrong time, but we do not switch back in at the right time either.
Abromowitz says that with the market producing returns in excess of 10% in May 2009 for example, the switching rate was back at the 2% level and many members lost out on the strong market performance that came through.
Approach global equities with caution.
However, others warn that holding back might be the right option until the economic outlook becomes more settled. Investment Solutions, one of South Africa’s leading providers of multimanager investment portfolios, has warned that equity markets globally are in risky territory – despite recent gains and significantly reduced volatility.
Glenn Silverman, global chief investment officer of Investment Solutions, says that many countries, and particularly the US and the UK, are still in deep economic trouble. “The debt and leverage excesses within the system, allied with typically low savings rates, are expected to create a massive headwind against which global economic growth, and presumably equity markets, may struggle for years to come.”
Silverman cautions that the recent global equity market rally which started in early March this year is simply a rally within a longer-term bear market and is likely to be unsustainable.
“Markets may well still grind higher over the next few weeks but investors should note that markets are approaching an over-bought level. And the historically dangerous month of October is only weeks away.
“Investors should avoid chasing the market at this late stage. The bear is still lurking out there somewhere,” says Silverman.
Such caution comes from the fact that this is not the first – or worst – crash that we have ever had. There could yet be more to come. The Wall Street Crash of 1929 saw an 89% fall in the market (as measured by the Dow Jones Industrial Average) over a period of 713 days. The Asian Financial Crisis of 1997 resulted in a 19% fall in the market over a 31-day period. Worse still, Black Monday – 19 October 1987 – saw a 23% fall in the market in a single day.
For anyone attempting to design a long-term plan for their retirement, this volatility – and volatility seems to be getting more severe every year – is disheartening. Should they even be looking at these short-term gyrations?
Build wealth before retirement.
No magical mix of investments will propel you to great wealth in retirement. You get rich before you retire, not afterwards, because a sudden and substantial increase in net worth cannot be achieved through investment without sizeable risks – and the vast majority of retirees simply cannot afford that level of aggression.
This view comes from Barnard Jacobs Mellet Private Client Services (BJM PCS), a specialist advisor to high net worth individuals and an advocate of prudent lifestyle decisions to support astute investment choices.
Retirees who enjoy acceptable living standards have usually made two key decisions before considering their investment options – the decision to live within their means and pay off debt.
“The sooner those decisions are made, the better the prospects for retirement,” says Jurie van der Merwe, a senior wealth manager at BJM PCS.
Wealth mounts when cash stops leaking out. The main drivers are then the timeframe (the longer the better), the size of monthly and annual commitments and the selection of a well-qualified wealth manager.
“The value added by a knowledgeable professional should not be underestimated,” notes Van der Merwe.
Time rapidly becomes decisive because the longer the timeframe to retirement the greater the potential recourse to growth assets like equities – a volatile asset class, but one with proven inflation-beating capacity.
The extent of short-term equity risk is highlighted by recent experience. The JSE peaked around 33 000 points in May 2008 before plunging to around 18 000 points in November. However, since March, the JSE has moved 25% higher, and there may be more growth to come.
“We see client inflows into equities; directly into shares by wealthy clients, but also into unit trusts and exchange traded funds. A 25% gain is substantial, but other emerging markets such as Brazil, Russia and China have strengthened even more, suggesting we have some catching up to do.”
Clients who had previously beefed up their cash positions appear to be inclining toward long-term growth.
The importance of diversification
Property, the other major growth asset, is also receiving attention. Van der Merwe adds: “Typical diversification for a moderate investor aiming for a comfortable retirement would be 40% to 50% in equities, 20% to 30% in property, 10% to 20% in bonds and 10% to 20% in cash.
“Stay in cash and you lose out in the end through tax and inflation. Interestingly, some conservative investors are moving from cash into income funds holding longer-dated corporate bonds as a way of locking in favourable rates.”
Diversification across domestic asset classes is usually complemented by offshore allocations, especially at times of rand strength.
“We generally advise a balanced mix across various geographies, Asia, Europe and America, with perhaps a tilt toward a specific theme – perhaps energy or Asian growth,” says Van der Merwe.
Wise entrepreneurs appoint advisors
John Kennedy, a Citadel Wealth Planner, has worked closely with many entrepreneurs over the past 15 years and understands their specific philosophy.
“Entrepreneurs have drive, confidence, and they never quit. They trust their instincts, are independent, think for themselves, have passion and don’t know the meaning of boredom.
“Unfortunately, the recipe required to protect their capital over the long-term is different to the risks taken to make it, hence, businesspeople are often heard to say, “I found it easier making money than looking after it”.
Indeed, many wealth managers report that entrepreneurs want to be more hands-on with their wealth management – just as they were with their business.
Kennedy says: “The long bull-run has now proven that for too long it was too easy. Preserving and growing capital was simply about taking more risk to get a higher return. Add in some gearing and the upside was exponential.”
Some high-risk investors came unstuck. “Often with entrepreneurs, cautious policies such as diversification, liquidity, objectivity, are the antithesis to what they’ve done to create their capital in the first place.”
That’s why a financial advisor needs to act as a counterbalance, especially for an entrepreneur. And herein lies a problem – many financial advisors took the route of least resistance by increasing their clients’ risk to increase the return.
“Unfortunately, the consequences of last year’s turmoil are that the trust which many had in their advisors is either being questioned or has been lost. Certainly, many people are feeling
“For a partnership to succeed there needs to be an alignment of interests. Proper planning, a pre-agreed upon investment strategy, a process with a proven track record and well executed implementation must support this partnership. The global industry is being questioned for its ability to deliver on independent and objective advice and ultimately to act in the client’s best interests,” explains Kennedy.
(Infographic) The 10 Things You Should Cover In Every Investment Pitch
If you want to wow potential investors, you need to cover your bases.
If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.
Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.
You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.
This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:
- The vision, where you concisely explain your idea.
- The problem. Why is your vision necessary or helpful?
- The opportunity. What is the market size, and how can you position yourself to earn a share of it?
This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.
This article was originally posted here on Entrepreneur.com.
‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous
Is your business worthy of fame? If so, pay attention to what the Sharks have to say …
Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.
The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.
I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:
- Charles Barkley, Hall of Fame NBA star and TV analyst
- Alex Rodriguez, legendary baseball player and businessman
- Rohan Oza, an iconic brand builder and marketing expert
- Sara Blakely, founder and owner of SPANX brand
- Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
- Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
- Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.
My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.
I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.
1. Create an ingenious product
When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”
Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.
2. Leverage social media marketing
During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”
Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”
Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”
No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.
3. Build a community
Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”
John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.
If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.
4. Devise a publicity hook to win earned media coverage
Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”
Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.
Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.
5. Know your strengths and stay focused
When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”
These are wise words from one of the world’s few billionaires.
This article was originally posted here on Entrepreneur.com.
The Best Way To Get Your Teenager To Start Investing Right Now
Jeff Rose advises a young fan on where to start his investment journey.
In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.
Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.
In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.
As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.
Click on the video to hear more tips for a younger investor.
This article was originally posted here on Entrepreneur.com.
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