What can you do to achieve investment success?

THERE are three main role-players that play a part in investors achieving their goals. They are investment managers, financial advisers and the investors themselves.

1. The investment manager

An investment manager’s core duty is to manage funds. This means managers actively make decisions about where and how to invest the money that they are entrusted to invest, according to a specific investment policy and objective. They perform asset allocation (how much money to invest into different asset classes or types of investments), based on extensive research, and manage the fund actively or passively (making “active” daily decisions to buy or sell or, if they are passive investors, buying or selling following a pre-set rule or index).

All investments have some risk, so investment managers try to ensure that they generate an appropriate risk-to-return ratio. Over the longterm, consistent risk-managed returns at attractive fees play an important role in delivering performance.

Different investment management houses apply different strategies and beliefs in their approach to managing money, and they incorporate different investment processes and tools to achieve their investment objectives.

2. The financial adviser

From an investment point of view, a financial adviser typically matches an investor's goals and objectives to a fund or investment vehicle they believe will deliver what the investor needs to achieve and at the risk level that is appropriate for the investor’s specific investment allocation. This requires them to understand the wide range of funds and solutions available, and to select which of these is most appropriate for each of their client’s needs.

There are lots of funds available in South Africa and the range of returns they offer is wide, which emphasises the importance of making informed investment decisions and the responsibility that advisers have. These funds fall into different Association for Savings and Investment SA (Asisa) categories based on the assets they invest in.

3. The investor

Your responsibility as an investor is to be disciplined about saving and to get advice from an expert to fill any knowledge gaps you may have.

The first thing is that you have to be clear about how much money you can set aside to invest. This means you need to forego spending today to save and invest for your tomorrow. Some investors choose to go it alone when it comes to making investment choices and prioritising financial goals, but it can be very complicated with so many options.

You also need to structure your financial matters to protect yourself, your loved ones and their future.

If you do get financial advice, you need to be honest and transparent with your adviser so they can judge and recommend the appropriate course of action (or inaction) when it comes to your investments.

You also need to understand the plan that they propose and stick to it.

There are different asset classes available to investors, and the allocation to each depends on the investor’s needs and time horizon.

If you are saving for the long term (like for retirement), you need to ignore short-term market fluctuations. Research shows that investors who invest for the long term in a well-selected fund are likely to do better than those who chop and change over the short term.

To sum up

Your investment manager’s core role is to achieve the fund’s investment objectives by investing in assets that could produce the best possible return without exposing investors to unnecessary risks that may result in a loss over time.

Your financial adviser’s core role is to help you to achieve your financial objectives in line with your risk profile.

Your role as an investor is to save and, if you need advice (as most of us do), to consult a financial adviser and stick to the agreed plan.