My investment journey: Part 3 of 3

27/03/2017

Bulls Eye - Jeremy Thomas-576602-edited-1.jpeg

When it comes to investing, I reckon most of us have a pretty deluded view of how much risk we’re prepared to take in the chase for better returns. In my case, I learnt a damn hard lesson that your choices must always be properly thought through with the long-term goal in mind. If you don’t do that, you slip into the trap of getting all bitter and defeatist when things don’t go your way in the short term. In the worst case, you bail out of the investment when you’ve already lost a substantial chunk -- with no realistic way of ever recovering that loss if you choose to sit on your diminished cash sum, fuming in rage at the asset management industry.

This is what happened to me in October last year. I never came close to shutting down my holdings in the Sir Edmund Hillary Strategy-- I’m too stubborn and optimistic for that -- but I had to be reminded that I’d signed up for the strategy in good faith, mindful of the risk, with my eyes wide open. And if I really wanted to switch the investment, there were other less-risky opportunities within the Emperor Asset Management stable.

How did I get to this uncomfortable position?

At the beginning of 2015, and with a year’s worth of salary paid upfront as a kind of sop to the insult of being retrenched simply because at 55 I was deemed to be too old, I knew exactly where I wanted the cash to go. And I convinced myself that my risk-reward ratio was nicely balanced.

Consider where the lump sum went: a third into the zero-risk mortgage (the house has buckets of residual value); a third into discretionary investments (via EasyEquities, the most fun anyone can have in the stock market); and a final third into Sir Edmund Hillary. Where the lump sum went, I should have realised, was into high-risk territory that I was not aware would make me queasy when markets, or the fund’s strategy, caused short-term losses.

What I should have done is consider that discretionary chunk of high-risk investment as ONLY PART OF my much larger portfolio, which was overwhelmingly tilted to lower risk. On balance, if I’d properly considered it, I was easily within my risk-reward comfort zone. There are three other parts to this broader investment portfolio: a home, a retirement annuity, and pension fund savings.

I know one’s house should not really be regarded as an investment asset (it is a lifestyle asset since you have to live somewhere), but I am extremely mindful that its residual value will provide a fat cushion one day when the time to downsize (or relocate) comes. I look upon a (cheap) bond on a house in a good area as low risk with a guaranteed return.

The RA, apart from being another savings vehicle, is maintained mainly so I can channel 27.5% of pre-tax earnings into it in order to earn a rebate. It is mandated by law to operate within strict prudential rules in terms of asset allocation. Which makes it inherently conservative and hence low risk.

Similarly the pension fund savings, which I transferred into a living annuity in 2015. Although I have some discretion as to fund allocation (offshore proportion, for example) and asset manager, this too has to conform to prudential rules. Put simply, it is a real old-man-style portfolio fixed on its primary goal of providing income at low risk.

Only once I’d done this mental balancing act did I realise that I had been slightly hysterical when confronted with short-term losses in the Sir Edmund Hillary strategy. After all, it had been less than two years into the ten years (at least) that I was committed to holding it.

In short, I learnt not to be a giant sissy about things. I don’t need the money as cash, I really don’t want to invest it anywhere else, and besides I’m fascinated by the daily performance of the companies and ETFs that make up the strategy. A detailed update is e-mailed to me every day, showing daily profit and loss, and occasional rebalancing. I love it.

Sure, some days I want to strangle Tom de Lange (there were times, as he admits when the strategy went wonky) but now that I’ve thought things through properly, a lot more excitement. This was meant to be fun, dude, so lighten up and enjoy the ride …

Read part 1 of this series 

Read part 2 of this series 

Jeremy Thomas is the former news editor of the Business Times section of the Sunday Times, where he wrote the weekly Bull's Eye column. He was previously editor of the Money section of the newspaper and a reporter on companies for Business Day.

The views expressed in this article are those of the writer and the information is issued for information purposes and is not an offer to purchase or invest in a specific product. Individuals should seek professional advice to make an informed decision.

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