From 2013 to 2015, South Africa's listed property sector has achieved a 17% annual average return.
Over the same period, that's:
Five times more than what SA bonds returned
Three times more than what SA cash returned
3% better return than what SA equities has achieved
But the many investors who allocated a large portion of their wealth into listed property in 2016, will be extremely disappointed right now.
You see listed property's performance in 2016 has been mediocre - So far only delivering single-digit returns - Outperformed by bonds and cash.
So what's my point?
Simple, investing in one asset will destroy your wealth as quickly as you ever imagined. And the aim of investing is to make money, not lose it.
So as you gear towards 2017, if there's one investing New Year's resolution you should make, it's this…
Use this simple award-winning strategy to outperform the market in 2017
In 1990, Dr Harold Markowitz won the Nobel Prize in Economics for his ground-breaking paper.
In this paper, Markowitz showed how investors can master uncertainty and, at the same time, generate excellent investment results.
According to Markowitz, the best way to achieve this, is through an easy-to-implement investment strategy.
It’s designed to make sure you take neither too much risk nor too little. And importantly, provides you with a balanced investment portfolio that ensures you outperform inflation and the market, every year.
It’s called asset allocation.
And in simple terms, you put your money in a number of different assets to smooth your returns. That way you never run the risk of investing in duds. When one asset class does badly, a number of others will boost the returns in your portfolio.
The importance of spreading your risk through different investments
The importance of diversifying your investments through asset allocation is outlined in the table below. As property’s been the best performing asset over the last three years, investors would’ve allocated a lot more money in property stocks/investements. But as you can see, property is only the 3rd best performer – Contrary to what many analysts expected.
SA asset classes returns for 2016
But let me show the difference spreading your money equally over these for asset classes compared to allocating more capital for stocks. I’m going to use the returns in the table above for the example.
Model Investment Portfolio 1: Equal weighting for each asset
Equities – 25%
Listed Property – 25%
Cash – 25%
Bonds – 25%
By the end of 2016, your overall returns would be 6.93%.
Model Investment Portfolio 2: Heavy exposure to property and equities
Equities – 35%
Listed Property – 35%
Cash – 15%
Bonds – 15%
By the end of 2016, your overall returns would be 5.62%. That’s 1.31% less.
The point is, as much as equities and property could generally deliver bigger returns, there’s still a need to sufficiently allocate a significant portion of your capital to bonds and cash – For protection measures.
Also, I’m not suggesting you build an equally weighted portfolio, but rather invest to your specific goals. If you’re risk-averse, then investing a larger portion in bonds and cash is the rational choice. On the contrary, high risk investor would invest more in equities.
The point is, asset allocation is a proven strategy to beat the markets and you must implement this strategy in 2017.
And every year, this portfolio has proved Markowitz’s theory by consistently beating the JSE. In 2016, it helped us beat the JSE All Share by 7%.
Until next time,
Always remember, knowledge brings you wealth,
Joshua Benton, Real Wealth
If you’d like to find out how our asset allocation model works, how it outperformed the JSE in 2016 and how to set up your 2017 Gone Fishin’ Portfolio
, then go right here.