The tendency of high net worth individuals to split their financial affairs among several advisers is one major cause of poor investment decisions and inadequate diversification. At issue here is what diversification means. Too many investors think they’ve diversified their risk, when in fact they’ve simply spread the same risk between several fund managers.
The purpose of diversifying an investment portfolio is either to reduce the risk for a given expected return or to increase the expected return at a given level of risk, says Johan de Lange, director of Allan Gray Investor Services.
To spread investments successfully, investors should consider a number of aspects, rather than randomly diversifying among managers in the hope of achieving some diversification benefits, he says.
The first consideration is the asset allocation decision – the mix of shares, property, cash and bonds in a portfolio.
“Due to the uncorrelated nature of the returns of each asset class, asset allocation is likely to make the biggest impact on an investor’s risk/return outcome,” De Lange explains. Investors can diversify across different asset classes either by selecting a “balanced” or multi-asset class fund that matches their broad asset allocation mix requirements but gives the portfolio manager the ability to vary this within certain mandate guidelines; or they can create their own portfolio by buying specialist asset class funds.
Choosing an asset manager
Having made the asset allocation decision, the next area of focus should be the selection of the asset manager and the individual funds. The most important decision is selecting a fund that is likely to deliver strong risk-adjusted returns – it’s one that should be taken in light of a fund’s proven long-term track record. Investors should consider choosing multiple funds if, when combined, they have the effect of reducing risk. De Lange says that to achieve the benefits of diversification, investors should select managers who employ different investment philosophies and styles. “The best strategy is to invest in funds that behave differently under different scenarios, funds that are uncorrelated in their return and their risk profiles.”
Choosing fund managers is one of the biggest challenges for retail investors. Veronica Goodall, asset management consultant at stockbroker BJM, says that all too often the decision is based not on an asset manager’s strength of ability, but on their strength of presence – or the size of their marketing budget. The fact that a brand is all over the media tends to make them top of mind, but Goodall says investors need to look deeper, at the BJMs, the Coronations and the Allan Grays of this world, and not just the biggest players.
Creating the relationship
Goodall explains that unless the investor has a R10 million portfolio, it is likely the relationship with the asset manager, once selected, will be hands-off. “So all the hard work needs to be done upfront in choosing the right manager of your money and placing your trust in them – because there will be no massive personal relationship afterwards,” she says. In BJM’s case, that relationship consists of two roadshows a year, which clients are encouraged to attend and where they can air their questions, as well as regular newsletters and fact sheets.
The bulk of the information is freely available on its website – and so it is with most asset managers. A multimanager such as SYmmETRY does all the fund manager research for the investor, to a depth that no individual could possibly do for himself, and CEO Raymond Berelowitz says there are risks in choosing a fund manager that the average individual could simply never be aware of. In a skills-short country like SA, teams frequently change with profound consequences. If your selection criteria are the asset manager’s performance over the past five years, the loss of key personnel effectively means it is a new team and past performance is no longer relevant.
“In SA, there is a preference for the team-based approach, and changes in personnel affect the credibility of the team so much that you henceforth have to take their performance data with a pinch of salt.
“The average investor would probably never even know of such a change, and even if he did, he might not get the significance. We have the muscle to get plenty of face-time with asset management houses, because we need to understand a team, when there’s a change and whether past performance is still relevant,” Berelowitz says.
10 Tips To Become A Millionaire This Year
Becoming a millionaire requires changing your mindset and implementing some changes.
Becoming a millionaire may seem out of your reach, but it’s possible with the right attitude and guidance. The fact of the matter is your income can only grow as quickly as you do, so you need to change your mindset to achieve your goal of becoming a millionaire.
Once you have a millionaire mind, you can’t lose it, no matter what financial or business mistakes you make along the way. To get yourself there, you’re going to need some structure. To help you, I’ve outlined the top ten tips you should follow to become a millionaire this year.
If You Think These 5 Things, You’ll Never Get Rich By The Time You’re 30
Five common mistakes entrepreneurs make when starting a business and how to correct them.
Last week, I had lunch with a millennial who wanted some advice about a business he’s starting. After the usual small talk, we got down to discussing his business plan. Within a short time, it was clear that his business idea was great, his plan for executing was fairly solid and he had gathered together a strong team to help him make it happen.
So far, so good. But, to be frank, this guy has no chance of being successful with his current mentality. What it takes to be rich (or successful in any measure) has a lot more to do with your mindset than your ideas and plans.
From the time we started in business at the ripe ages of six and seven, our Grandpa Joe taught my brother Matthew and me many lessons about the details of running a profitable business. Over the years, we learned about how to create a business plan; how to market our products and services; and how to take care of customers, vendors and employees. All this knowledge has been invaluable to us in creating and running successful businesses. But, what our grandfather taught us about attitude and mindset trumps all other lessons.
Without calling out the specific individual I spoke with recently, below are five “hypothetical” attitudes that will get you nowhere in your journey to success – and the attitudes that should replace them.
5 Habits That Lead To Millionaire Business Success
You need the right habits if you’re going to succeed.
What do all millionaire businesspeople have in common? Well, a lot of things.
I found from a recent study that 80 percent of all millionaires still go to work every single day. They’re working people just like me. But, they have to keep themselves in work or it all grinds to a halt. So what are the habits you need to make your business a success?
Nothing is ever going to come easy. You can look at the likes of Steve Jobs and Bill Gates, as well as the other usual suspects, to realize that success didn’t come with their first venture. Many of them failed time and time again. It took patience for them to become successful.
I read an article recently about 36-year-old teacher Andrew Hallam who became a self-made millionaire on a teaching salary. But, in his spare time he invested smart and lived frugally.
It proves you don’t have to inherit lots of money or become an instant success to make a millionaire business.
You have to be dedicated to your craft if you’re going to become successful. Going back to Bill Gates again, he started his business in the back of his garage. Now that’s dedication.
It’s what I tell all my students. If they’re not dedicated to this, then they should leave. You need to be able to push through the barren periods if you’re going to reach the oasis of success.
3. Ambition and big dreams
Have you ever heard the quote, “Shoot for the moon. Even if you miss you’ll land among the stars”?
I take that to heart because even if you aim to become a billionaire and miss you still might be a millionaire many times over. Take the Wright Brothers as an example. Not content with creating a successful glider in 1902 they went on to create the world’s first airplane in 1903, making four brief flights in Kitty Hawk. It demonstrates the importance of dreaming big because you never know what you might achieve.
4. Learn from mistakes
Every good businessperson will mess something up. It’s inevitable. What’s important is how you learn from your mistakes over time. Do you adapt after making your mistakes?
Millionaire businesspeople always set some time aside to reflect. Then they create a plan of action for ensuring that it doesn’t happen again. Most failed businesspeople put it down to “bad luck.”
5. Focus on niches
This important! Try to take over a whole industry at once and you’ll inevitably get swallowed up by the competition. Start small and control your own niche before moving into another niche. When you master your small area, you can push on and expand.
You’ll be amazed at how much easier it is to expand after you master your own niche/audience first.
Do you have what it takes? That’s the question I always ask novice businesspeople. You need a plan and you need the right habits if you’re going to succeed.
This article was originally posted here on Entrepreneur.com.
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