Don’t
we all want to retire comfortably? Don’t we all wish that we could get the
return we want and need from our investments? Do you know inflation beating
investment returns depend on correct asset class allocation?
If
your investment returns do not beat inflation its value will have actually
decreased. Simply put, inflation is a
measure of how costs increase. R 100,000
in today’s terms is a lot less than it was 15, 10 or even 5 years ago. So when
you invest you need to ensure that you have the right asset classes proportioned
correctly within your portfolio.
I
have focused this analysis on the following asset classes. As an investor you
should already be invested in one or all of these:
·
Local equity,
·
Offshore equities,
·
Property, &
·
Cash.
If
you get your asset class balance wrong it will mean the difference between
investing to create wealth and just investing.
Table showing returns generated over a 10
year period based on a single fund used per asset class:
Asset class
|
% Allocation per
asset class
|
|||||
Equity
|
100
|
55
|
-
|
-
|
-
|
34
|
Offshr
Eq
|
-
|
30
|
-
|
-
|
100
|
33
|
Property
|
-
|
15
|
-
|
100
|
-
|
33
|
Cash
|
-
|
-
|
100
|
-
|
-
|
-
|
Real Return p.a. **
|
14.7
|
9.5
|
3
|
13.5
|
-3.1
|
8.8
|
Investment values using these returns over different
periods:
Yrs
|
Investment
return on R100 per month (in advance)*
|
|||
Capital
|
14.7
% p.a.
|
9.5
% p.a.
|
3
% p.a.
|
|
10
|
R12,000
|
R
26,857
|
R
20,181
|
R
14,009
|
15
|
R18,000
|
R
63,759
|
R
40,276
|
R
22,754
|
30
|
R36,000
|
R
609,559
|
R209,302
|
R
58,419
|
Notice
the difference a few percent’s make in returns? How about the returns compared
to capital invested?
If
you get your allocation wrong your wealth has been seriously eroded. You might
as well just stash your cash under your bed and hope it doesn’t get
stolen. Get your asset allocation correct
from the start and you should benefit through superior returns.
My
goal here is to make you more aware of what you are investing in. Often I get the answer: ‘I don’t know’ when I ask the question: ‘What are you invested in?’ We must stay on
top of our investment and its returns as time is something we can never get
back. You can’t turn around just before retirement and try to recoup missed
returns and compounding on your investment.
Do it while you have time to grow your wealth.
Funds used in this analysis: Allan Gray
Equity Fund, Coronation World Equity FOF, Marriott Property Equity fund &
Investec Money Market.
** -From IAM portfolio creation tool using %
allocation
* -Investment returns compounded monthly at
nominal interest rates.
