Your journey as an investor started with a plan on day one. Uncertainty has the ability to make one forget about the plan which made so much sense initially. It is for this reason that it is necessary to look at the plan and the principles used to construct your portfolio to achieve your goals. The plan is important in times when uncertainty is high as the plan needs to keep us on track when doubts are creeping. The investment plan is our unemotional compass which fulfils the silent role of a gatekeeper to prevent investors to implement bad ideas based on emotion.

Going back to the plan

Your investment plan is based on the principle of diversification in the following ways:

• Asset Classes-Equities, Property, Bonds, Cash and offshore exposure
• Fund managers that are all selected through our vigorous selection process
• Different strategies and plans within a well-defined mandate

Given the current market environment it is sensible to discuss the different strategies in a multi asset class portfolio also known as a balanced portfolio. These portfolios are exposed to all asset classes and the strategies employed amongst others, can be identified as follows:

1. 25% direct offshore exposure
2. Strategic allocation to local and offshore fixed interest assets which are term dependant and highly correlated to interest rates
3. Strategic allocation to property equity locally and offshore. Some of the bigger REITS in SA have exposure offshore which is beneficial
4. in times when the Rand depreciates
5. Strategic allocation to equities locally and offshore that generate dividends and capital growth. Some of the SA companies have offshore
6. income streams which are an additional benefit in times when the Rand depreciates.
7. Some of our managers also buy portfolio insurance to protect the portfolio in times of falling equity markets.

Objectives of your plan

The objective of most investors is to stay ahead of inflation. The degree of outperformance needed by investors differs as risk profiles and personal needs differ. Our goal is to reach your investment goal by managing risk as explained above, with proper diversification and different strategies combined in one portfolio managed actively.

The biggest risk for your portfolio

One of the major risks of any portfolio is the investor him or herself. Investors have been observed in the past to display in consistent behaviour in times when they need to be consistent. This behaviour is normally in high volatile times which drive a lot of uncertainty and emotion of investors. Investor’s reaction to higher volatility is many a times to get out of their investments as it makes logical sense to do something when you sense “trouble”. Although last mentioned behaviour seems sensible it is most of the time a critical investment mistake especially if the initial investment plan was solid and based on principles as described above. The price of reacting based on the emotion of fear is sometimes more costly than just bearing short term volatility and “uncertainty”. Please note that uncertainty is always in the investment equation and degrees of uncertainty might changes over time it will always be present. The best way to manage uncertainty is to stick to a well-structured plan consistently. Consistency over the long term is the answer to uncertainty in the short term. Think about it: The market is an uncertain/ inconsistent environment. Inconsistent investor behaviour cannot yield profits over the long term based on its inconsistent behaviour. One variable (investor behaviour) plus another variable (the market environment) will not yield a constant result. Therefore, stick to the investment plan (be consistent) and focus on that which you can manage namely your fears and decide for yourself if those fears can be justified or not based on facts.

What are your fears?

We are bombarded with negativity these days and it is quite possible for you to wonder what the relevance of some of these real word issues are on your portfolio. The below table summarises some of the fears in the minds of investors currently and the potential relation thereof to your investment portfolio.

What are you afraid of at the moment?	Effect	Relation to Portfolio
SA credit downgraded to junk status	Bonds will fall and the yields on Government bonds will go up	Falling bond values will create opportunity for managers to buy low and lock in high yields caused by the downgrade which is a positive for this part of the portfolio invested in bonds
Interest rates going up	Yields on money market instruments will go up	– The fixed interest part of the portfolio will buy these instruments and lock in above average yields which is beneficial for your portfolio – Financial companies like banks can benefit from higher interest rates as it is their primary income from loans. Your portfolio is exposed to bank shares and is serving us well since the beginning of February 2016.
The Rand loses field against the USD	Exporters in SA will benefit and importers will suffer Our offshore debt will increase in ZAR terms and is not good for the economy as a whole.	-Your portfolio is 25% exposed to offshore assets. The weak rand will benefit that part of the portfolio directly. -Most shares held in your portfolios are exposed to USD and other offshore income streams. That means the Rand returns of these so called rand hedge shares are partly protected against the weaker rand.
Inflation go up	The current draught in SA will put pressure on food prices and on the consumer. Higher CPI will be combated by the SARB with higher interest rates which.	Higher CPI is combatted with higher interest rates which is beneficial to the fixed interest part of the portfolio as explained above.

The intention is to help you to think of the risks identified as potential opportunities in your portfolio based on your understanding of the different strategies implemented in your portfolio as explained above. Chances are good that these risks will be transferred in profits in your portfolio by one or more of the strategies employed. It is also true that not all strategies employed will work all the time and that one should be at peace with that. This is probably the key principle of diversification. If one or more strategies are successful chances of others to be unsuccessful is high due to the low correlation between the different strategies. The ultimate goal is to generate long term returns within a disciplined band of volatility and reaching your investment goals at the end. The road to that goal is not priceless and without volatility, there isn’t such thing as a free lunch, the price in this case is to stay focused and disciplined and in line with the plan.