Connect with us

Investing

The Truth About Unit Trusts

Unpacking the myths around investing – and what it means for planning your future.

Candice Paine

Published

on

106

Don’t invest in cash because inflation will eat into your returns. Diversify your investments as much as possible. Keep a close eye on daily stock market prices. A deep analysis of unit trust data undertaken by Sanlam Investment Management (SIM) shows that this sage investment advice may not be as sound as popularly believed.

Many of the investing maxims we’re used to hearing should now be considered myth. Much investing takes place on the basis of sentiment, speculation and misguided assumptions. But research over the long term can now dispel these assumptions – to the benefit of the investor. Here are five myths of unit trust investing.

Myth 1: You shouldn’t invest in cash because inflation will erode returns.

Statistics show that cash has outperformed inflation over most decades since the mid-1950s. As long as the Reserve Bank keeps positive real interest rates, cash will provide above-inflation returns. This is also currently the case: consumer inflation rose 5,3% year-on-year in August, while the repo rate today stands at 5,5%.

Another surprising result from SIM’s research has shown that cash has outperformed bonds over the period since 1957. Had an investor put R1 into cash, he would have accumulated R291,12 by the beginning of 2011. Bonds would have returned R237,54 over the same period.

However, investing in cash comes with an opportunity cost as opposed to investing in equities. Since 1957, a R1 investment would have been worth R5 767 by the start of 2011, had it been placed in equities. Investors in 2008 bailed out of the stock market after it crashed – only to lock in their losses and invest in far lower yielding cash. This could prove to be extremely costly if maintained over the long term.

Myth 2: When stock markets become highly volatile, run for shelter.

Most investors disinvest in equities during a market crash. However, there is no consistent correlation between volatility and stock market returns. Rather, invest based on fundamental company valuation measures.

SIM has followed the value investment strategy – buying shares when they are unpopular, and selling them when they become popular. For example, had you bought the All Share Index in 2003, when it was highly unpopular, you would have enjoyed attractive returns. The value strategy has also offered the best returns, based on analysis since 1997. Market sensitive stocks, on the other hand (those shares that move with the market) have been the second worst performers over the past 17 years.

Myth 3: I know my risk tolerance.

Chances are your risk tolerance changes when markets do an about-face. Investors regularly fall into the trap of buying assets when they are expensive, and selling when they are cheap. To overcome this, stick to a time horizon and do not deviate from the investment plan.

Also, know what can reasonably be expected from each asset class. Data collected over the past century shows one can potentially expect a 7% long-term real return from local equities, 3% from local bonds and 2% from cash – if you stay invested for a minimum of ten years. Global equities could deliver 6% above inflation and global bonds 2%. SIM’s own research shows investing in its equity-dominated Aggressive Fund would return a third more over ten years than opting for a Conservative Fund.

One compelling solution to overcome emotional investing is to invest in a well-matched multi-asset class fund, and let it do the hard work for you – dispassionately.

Myth 4: If you invest with an award-winning fund manager, you will get the best performance in future.

There are two pitfalls with this thinking. For one, the top performer rarely remains at the top for long. And investors who select funds using this criteria run the risk of falling prey to short-term bias. Ideally, annualised performance over five to ten years will give you a more reliable indication of what to expect from the manager or fund. Investors are likely to be better served by a manager who has consistently delivered benchmark-beating returns, because that is far more likely to be repeated.

Myth 5: The more diversified your investments, the more likely you are to achieve consistent, superior returns.

The truth can be opposite: diversifying your portfolio is a complex process, and at some point diversification can destroy value. What’s the limit before value is lost? Research shows a portfolio with more than four funds fails to add value.

There are two alternatives to investors. Either build up a good understanding of the complexities and risks involved in building a portfolio. Or simplify the process by investing in a multi-asset class, balanced fund. It should be managed by professionals who have the skills to get the most out of diversifying across asset classes, and whose investment styles can adapt during different market conditions.

Candice Paine is the Head of Retail at Sanlam Investment Management. Candice holds a BCom (Hons) in Financial Analysis and Portfolio Management from the University of Cape Town and is a Chartered Financial Analyst.

Advertisement
Click to comment

You must be logged in to post a comment Login

Leave a Reply

Investing

(Infographic) The 10 Things You Should Cover In Every Investment Pitch

If you want to wow potential investors, you need to cover your bases.

Matthew McCreary

Published

on

investment-pitch-elevator-sales-pitch

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:

  1. The vision, where you concisely explain your idea.
  2. The problem. Why is your vision necessary or helpful?
  3. The opportunity. What is the market size, and how can you position yourself to earn a share of it?

Related: How To Pitch Your Business, Product Or Idea To Industry Experts

This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.

1541174287_investment-pitch-infographic

This article was originally posted here on Entrepreneur.com.

Continue Reading

Investing

‘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 …

Eric 'ERock' Christopher

Published

on

Shark Tank

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.

Related: 6 Great Tips For A Successful Shark Tank Pitch

2. Leverage social media marketing

barbara-corcoran

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.

Related: Shark Tank Funded Start-up Native Decor’s Founder on Investment, Mentorship And Dreaming Big

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.

Continue Reading

Investing

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.

Published

on

teenagers-investment

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.

Related: Making International Investing Simple And Transparent – CybiWealth Digital Platform

Click on the video to hear more tips for a younger investor.

This article was originally posted here on Entrepreneur.com.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending