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1 year ago

Blue Chip Issue 85

  • Text
  • Financial services
  • Capital
  • Fpi
  • Asset management
  • Investment
  • Stocks
  • Financial planners
  • Financial
  • Global
  • Investments
  • Asset
  • Wealth
  • Planner
  • Portfolio
  • Retirement
  • Hedge
  • Advisors
  • Funds
Blue Chip Journal is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry. Visit Blue Chip Digital: https://bluechipdigital.co.za/

BLUE CHIP INVESTMENT

BLUE CHIP INVESTMENT Upside without the downside is the perfect sales pitch for any investor, but rarely does this ring true. allow debt issuers to repay their loans. This is quite a narrow set of major events which all need to remain intact, unlike the global equity portfolio which can weather many a storm and still retain value for investors. It is not the short- or medium-term variability of portfolio values which characterises risk, but rather the likelihood that you, as an investor, get to earn the return you seek. The higher that likelihood, the lower the risk. BEWARE THE FREE LUNCH Unfortunately, while the industry does not offer warrantees as standard fare on its investment services, it does tend to create attractive products which rely on the risk aversion/ wealth-seeking investor desires. Upside without the downside is the perfect sales pitch for any investor, but rarely does this ring true. Products such as hedge funds and many structured products can sound attractive at first, by promising positive returns without the downside. If this were the case, wouldn’t all investor assets have migrated there by now? Most often the risks are just a little opaquer, and the costs higher, often offsetting what benefit there may be. LIVING WITH RISK Back to our service versus product conundrum. The investment industry offers a long-term service, best measured over three decades to provide a warranty-level of comfort to investors. Investors are hoping for shorter-term certainty and are often poorly communicated to by the industry. This conflict is the source of enormous amounts of industry effort to help align expectations, but “never the twain” shall meet. As service providers to investors, we can start by communicating better and the topic of “risk” is one such example of a potentially damaging concept which, when used without due regard for its impact, can cause harm to portfolios. As a financial planner, asking yourself and your client simple questions can help mitigate the real risk in investing: • Is your client’s portfolio adequately diversified? • Do you and your client recognise the potential cost of being too conservative? • Are you and your client being objective about your client’s portfolio when markets are behaving erratically? • Does your client fully understand the implications of changes they or you wish to make to their portfolio? Better awareness of, and co-existence with, investment risk will result in better investment outcomes. Guaranteed. Peter Foster, Chief Investment Officer, Fundhouse 38 www.bluechipdigital.co.za

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