The investment landscape has been ROUGH over the past few years. Even though the markets have been characterised by uncertainty returns have been kind. This has been due in large part to the easy monetary policy implemented by the central banks of the developed world. A question which now plagues the minds of investment professionals, and which is spurring great debate, is how financial markets will react when the central banks normalise their policy stance.
These are important considerations for those with investment time horizons of less than 10 years and a prudent portfolio should be implemented to protect capital and generate returns during these uncertain times. This is not, however, the case for those individuals with investment horizons stretching out beyond 20 years.
Over the long term positive investment returns are more certain and the ranking of returns from the various asset classes is also more certain. An analysis of the South African investment experience suggests that, over time, the four main asset classes are likely to produce the following real returns (after inflation) in the long run:
Cash: 0 to 1%
Bonds: 1 to 3%
Property: 2 to 4%
Equities: 7 to 9%
[Based on Fortune Strategy – The definitive guide by Bradley, Higgens & Abey]
This obviously does not mean that everyone should be invested only in equities as time horizons, risk appetites and investment goals differ, but it does mean that those individuals who begin planning for their financial future at a young age will be able to implement a strategy that can guide them to reach their financial goals with far greater certainty.
The noise and uncertainty we face in the short term are of less concern to those with long term investment strategies in place. We urge young investors to consider their financial goals and how they will achieve them.
The success of a financial strategy becomes more certain the longer the time horizon by eliminating much of the uncertainty regarding investment returns while reducing the burden of monetary contributions you need to make owing to the benefit of compound returns.
Contact us if you would like to discuss your financial goals and the strategy you require to achieve them.
