How do you invest wisely in Unit Trusts if there are 6 broad Sectors, 30 classes and more than 800 Unit Trust funds? Between these funds you will find the consistently top performers, those with average performance and those that simply fall out of the bus. Do you rely blindly on the wisdom of your financial planner? Will a basic needs analysis and risk profile really improve the quality of decision-making? How do you maximise your investment return with minimum risk, keeping Kathleen Gurney’s money personalities in mind?
The 9 years since December 2000 give us the opportunity to establish which investment philosophy stood the test of time. Magnus Heystek of Brenthurst Wealth provides excellent food for thought in his newsletter articles, particularly those of February, June and July 2009. During the long bull market, 2003 to 2008, passive investing – investing in unit trusts tracking the market indexes and/or buying Exchange Traded Funds – became fashion of the day. The run-up to the market crash and the period thereafter shows us that active fund managers concentrating on the value investing philosophy and allocating assets skilfully came out on tops.
Magnus likened investing in Exchange Traded Funds to investing without a parachute and rightfully argue the core of any Unit Trust portfolio need be in Balanced Funds. You will find the Balanced Funds in these classes: Domestic-Asset Allocation-Flexible, Prudential Medium & Prudential Variable Equity Funds and Foreign & Worldwide-asset allocation-Flexible Funds.
How do I identify the best performers? The Personal Finance magazine publish data of the Unit Trust Funds quarterly performances provided by Profile Data as well as the PlexCrown™ Fund Ratings. Select the funds with 4 and 5 crown ratings in each of the classes you are interested in. Then look at the top 25% in the 3 year fund performance ranking. Check if the fund also for the 6 month, 1 year as well as 5 years periods amongst the top performing funds. If so you can rest assure the fund manager is doing his outmost to deliver consistent results.
The number of funds you select will depend on the lump-sum available and the amount available monthly as contributions to the funds. If the lump-sum is less than R50 000 and the monthly amount less than R500, you do not need to invest in more funds than a Balanced and a Value Fund.
What portfolios would be ideal for Kathleen Gurney’s money personalities? Safety Players, Achievers and Perfectionists can put a third in Balanced Funds, another third in Domestic Fixed Interest Funds. The last third can be spread equally between Domestic Real Estate and Value Funds. Hunters, Money Managers, Optimists and Producers can spread the funds as follows – 25% in Fixed Interest, 25% in Real Estate, 25% in Balanced and 25% in Value Funds. Entrepreneurs and High Rollers may take these options – 10% Fixed Interest, 20% Real Estate, 30% Balanced, 30% Value & General Equity and 10 % Foreign & Worldwide Funds.
The above are only general guidelines. Closer to retirement preference should be given to the assistance of a financial planner. You need to establish whether you provision is enough or need to be increased. Will the funds you are invested in provide adequate growth and income? If your financial planner can not assist you in this regard it may be time to look for someone that can.
Dr. Kathleen Gurney, Ph.D. founded The Financial Psychology Corporation®, She developed the Moneymax® profile which formed the basis of her book, Your Money Personality: What it is and How to Profit from It. Financial Psychology Corporation. Hugo Snyman is the founder of Third Circle Asset Management (Pty) Ltd. and uses her profiler in South Africa.
Closing this series with my next blog I will explore the implications money, in terms of the money personalities, has on the well-being of marriage.