INVESTING AND TRADING How holistic financial planning can enhance your share portfolio
Grant Meintjes Head of Securities PSG Wealth
Financial planning should be about more than just money. Taking a holistic financial planning view follows a different approach and asks how each part of your life interconnects and how your different goals impact each other. It potentially offers many advantages, and yet we find investors are often tempted to exclude their share portfolio from their overall plan. We believe a holistic approach can help you maximise your share portfolio in the long run, as it helps to cultivate a more considered and disciplined approach.
You may have excluded your share portfolio from your initial plan The reasons investors are tempted to exclude their share portfolio from their holistic financial plan are varied. You may have started out with a small amount of money which seems unimportant to include in your plan, or perhaps it is one area of your financial plan you want to retain control over. Perhaps you are motivated by those weekend conversations around the braai, and simply want to be able to take part. Whatever the reason, investors may not apply the same level of rigour to a share portfolio as they do to the rest of their financial portfolio.
A share portfolio needs an investment strategy too Just like any other part of your portfolio, however, your share portfolio needs a clear objective and strategy. It is key to stick to your investment objectives and not to second-guess yourself or your investment adviser. In the first quarter edition of The Wealth Perspective, I highlighted six trading mistakes to avoid, and it is worth revisiting these to ensure you take a considered approach to your share portfolio. Below are three key ways in which we believe holistic financial planning can also encourage you to apply more rigour to managing your share portfolio – and reap the benefits in the long term. 1. Holistic planning encourages you to view your shares objectively Equities have proven to be the best asset class to be exposed to over time. Share portfolios therefore have enormous potential to enhance the returns of your overall financial portfolio, provided you take certain factors into account. One consideration is that since the returns on shares are not guaranteed, selecting the correct shares is of primary importance. Another is to ensure you avoid the common mistake of getting emotionally attached to some of the
shares in your investment portfolio. If a share you have included in your investment portfolio is not performing as anticipated, swap it for another one that could meet your investment needs. Often, a financial planner can act as a sounding board and help you take a more objective view of your holdings. 2. It reminds you of the importance of the correct time horizon We often find that with shorter-term investments, investors tend to invest in riskier shares as the yield potential is more attractive. This approach may lead to disappointment, since the probability of loss is typically higher in the short term. Make sure that when you invest in a share portfolio, you define your investment horizon correctly, and that the risk/return trade-off you identify is based on facts rather than on hopes and expectations. Share portfolios are not get-rich-quick investments. Investment strategies can take years to pay off. 3. Complementing a share portfolio with other products can lower risk The danger of viewing your share portfolio in isolation is that you may become overwhelmed by volatility or periods of poor performance. As we have said, share portfolios can be higher risk, but also tend to have higher returns over a longer-term investment horizon. For this reason, in a holistic plan they should be complemented with lowerrisk vehicles. Choose products that suit your risk appetite and your investment horizon, as not all investments may be equally suited to your purpose – especially, for example, when you are saving for retirement. When you view your shareholdings as part of your entire investment portfolio, you are less likely to be discouraged by short-term volatility and respond emotionally.
Whatever the reason, investors may not apply the same level of rigour to a share portfolio as they do to the rest of their financial portfolio.
FOURTH QUARTER 2017
INVESTING AND TRADING
Many of us need help to reap the benefits of a holistic plan Investing is not a sprint but rather a marathon. The best returns are achieved when you invest consistently and over an extended period. Investment advisers can often remain objective as they are removed from the emotional element of the equation that often trips us up. It is not impossible to achieve this objectivity when managing your own portfolio, but it does require more discipline and research. Holistic financial planning is not about putting you in a box and limiting your choices. Rather, it is about ensuring that every part of your portfolio contributes to the success of your overall financial plan – including your share portfolio.
Share portfolios are not get-rich-quick investments. Investment strategies can take years to pay off.
What is holistic financial planning? Holistic financial planning requires us to broaden our view of what ‘traditional’ financial planning is. Financial planning is designed to integrate all aspects of your life so that you are no longer wandering aimlessly, but moving forward with confidence knowing that each part of your life is moving in tandem with the others. It brings together the desires and passions you have for your family and merges them with your finances. Just as you invest your time in what you believe is most important each day, your finances should be invested and allocated based on the most important considerations. Instead of only thinking of your money as a way to simply earn more and accumulate things, think of it as a vehicle to reflect what your true values in life are. Holistic financial planning can assist you in assessing your life and defining and developing your purpose. During this process, a comprehensive financial plan is created that fits your story. A truly integrated financial plan can help you to allocate your resources in such a way that you are better positioned to achieve your overall goals.
FOURTH QUARTER 2017