The most important thing about how you look after your investments is to decide how much energy and time you can devote to your portfolio and to what extent you have to outsource the management of your funds.
The degree to which you can relax about your investment portfolio will then depend on how much time you have spent structuring it with your long-term goals in mind - with or without a financial adviser.
It is only when you have covered all the bases as far as your investment portfolio is concerned that you can safely ignore the market noise and deal with the other aspects of your life.
If you want to take a hands-on approach, you must make sure that you make the necessary time to look after your own finances. If you cannot do this, make sure that you have able professionals to do it for you.
My early Christmas present to myself is a copy of Bold Investment Thinking(edited by Rodney Sullivan, published by the CFA Institute), which is an anthology of investment-related articles. In his article entitled, Bubble Logic: what did we learn from the great stock market bubble?, Clifford Asness claims that the general public is full of bored, innumerate gamblers. This assessment is a bit harsh, but Asness is trying to impress just how much effort goes into structuring a portfolio and that a half-hearted, part-time attempt can cost you dearly.
I recently re-entered the corporate world. This event was preceded by a double-change of nannies and two exams in one month - not to mention the house renovations.
Before all these changes, I had the time to monitor most investments on a daily basis and analyse all aspects of the portfolio. Since August, I have once more slipped into the fuzzy world of unopened mail and unfiled monthly statements.
One of my personal responsibilities includes looking after my mother's share portfolio. She is a pensioner and needs the extra income that dividends can provide. I structured her portfolio in 2003, and a closer look at her portfolio now reveals that several of the shares that have paid handsome dividends over the past two years continue to offer an attractive yield, albeit lower, due to two reasons:
- They have mainly been in the industrial and financial sector, and have lagged the All Share index in share price performance this year as resource shares have run hard.
- They have continued to grow dividends along the way, enabling many of them to maintain a high dividend yield. Remember that interest rates are also lower, with the prime rate declining by two per cent since 2003. The resource run of 2005 and the good economic and earnings growth over this period, have given investors a second bite at selected shares. Granted, the great yields of 2003 have largely been grabbed, but there are still a few attractive dividend yields out there.
Some of these include City Lodge, still trading at a dividend yield of over five percent; Pikwik at a yield close to four percent; and Clientele Life at well over five percent. If you are searching for yield, you need to look in the areas that have lagged the resource sectors - the financials and industrials.
Since my return to work, I took a closer look my mother's portfolio. It was with mixed emotions that I discovered that my near-neglect had made little impact on its performance.
Remember, we are talking about three months during which we have had the aftermath of Hurricane Katrina in the Gulf of Mexico, the market rally, the subsequent decline and recovery in our markets and the global markets. We've had speculation that interest rates may be hiked, followed by speculation that they are likely to stay the same. And then there was the rand which weakened to almost R7 to the US Dollar, only to retreat back to R6.30.
If you had taken a big bet on any one of those factors, you were likely to have felt a little muddled. Fortunately, my mother's portfolio has participated in some way in most of the areas that did well, because of the diversified exposure, and the steady flow of dividends.
This column is not meant to be a brag sheet - far from it. I can find a hundred ways in which the portfolio could have been structured better. However, the approach of diversified exposure to the equity market with a slant towards good dividend payers, worked well. My final words of wisdom for 2005 then:
- Be realistic about the effort you are able to put into your investment portfolio taking into account the rest of your life and your current situation.
- Whether you involve a professional or not, you will have to spend some time ascertaining your own needs upfront.
- If you are investing yourself, most of your effort should go into establishing the portfolio. If time is limited, use diversification as a means to ensure that you are participating in most areas of performance most of the time.
- Anet Ahern is the chief executive of Sanlam Multi Manager Internationals