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The most important investment decision you can make, in two minutes

by , 22 September 2017
The most important investment decision you can make, in two minutes
Please don't let your portfolio fall because of this single mistake…

In 2014, I got a mail from an investor:

“Francois,

I'm not investing in a single investment recommendation of yours again. I've bought Mr Price shares with my whole portfolio. And at the rate it's going now, I'll retire in a few short years.

I bought Mr Price at R136 in February, and now that it's August, the share is at R206, a 51% return for me in just over 6 months. That means I can double my money every year.

J”

And for a while it looked like J was right. His Mr Price holding grew to R283 by April 2015, 108% in slightly more than a year!

Today however, the share is trading at R158.

So, J's portfolio is up a full 16% since the start of 2014, now three years.

 

All of J’s returns vanished because of one small mistake

 
It’s called asset allocation.
 
Yes, it sounds like a boring idea.
 
And I’m not one for holding a hundred shares in my portfolio simply to diversify.
 
But holding one share, two shares, and then expecting you can outlast a market crash, or a struggling sector?
 
Impossible.
 
Simply put, asset allocation is the way you split your money.
 
And that’s not just between a couple of shares. But in different assets as well.
 
You should hold some cash, some shares, property and bonds.
 
That way, a drop in the value of one doesn’t necessarily mean a drop in the other – and your returns will stay stable.

An easy way to start investing in multiple assets right now

 
You can keep investing in your normal share portfolio.
 
Just make sure it isn’t ALL your money in it.
 
Now let’s say you invest in 10 – 20 different shares in this portfolio, you’ll be well diversified on the stock market.
 
Then you invest in a property ETF, like the Proptrax Ten. That gives you exposure to the property market, through a diverse range of companies.
 
Then you can put some cash in the Newfunds Govi ETF, which tracks a bond index.
 
It coincidentally returned 27% in the same time Mr Price returned 16%.
 
It’s up to you to decide how much to allocate to each. I’m young and aggressive. So, my share portfolio gets 50%, property 25%, and the remaining 25% I split between bonds and cash.
 
As you get older, and you near retirement you’d start changing these percentages, lower your share exposure, increasing property and bonds. But not too much – you still want to beat inflation returns!
 
Whatever you do, don’t invest in only one asset class – and more importantly, don’t invest in only one share!
 
Here’s to unleashing real value
Francois Joubert



The most important investment decision you can make, in two minutes
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