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Investment Planning
If you are new to the world of investments, the below process will enable you to start a seamless investment journey. If you are an experienced investor, you can select your own investment products and solutions. Should you have any questions or require assistance in setting up an investment, our team of investment consultants and specialists would love to assist you.
We all have financial goals we wish to achieve in life, whether it’s saving for a dream holiday, funding our children’s education, starting a small business, buying a home, retiring comfortably and everything in between.
Sound investment planning enables you to attain your financial goals by matching it with your available financial resources.
Further benefits of investment planning:
Increase your level of commitment and motivation. Track your progress. Manage your expectations during turbulent economic cycles.
If you are new to the world of investments, it might seem like navigating your way through a dense financial forest: overwhelming and somewhat intimidating. There would be different routes to take, uneven terrain and unusual elements lurking in the shadows.
Learn more about starting your own investment journey, conquering this unfamiliar ground and growing your own financial forest.
The Fairtree Financial Forest
- Soil (financial reality, including “emotions” and “values”)
- Seed (money personality)
- Roots (financial literacy)
- Unpacking spending/ budgeting
- Basic investment concepts (what is an investment, contributions, time and patience, compound growth, including certain projections, risk and return).
- Saving versus investing.
Educational Material
Download material
Setting financial goals begins with identifying what is important to you in life. Whether it is a desire to grow and advance your career through furthering your studies, buying a house to create a place of safety and stability for your family, traveling overseas or saving for a comfortable retirement so that you can spend time with your grandchildren.
Like with goal setting in general, financial goal setting also involves identifying a specific objective, which is measurable, attainable, realistic and linked to a certain time horizon.
A few examples could be the following:
Short (0 – 36 months)
- Emergency Fund
- Plan a holiday or travel overseas
- Buy furniture for your apartment
- Saving for your wedding
Medium (3 – 7 years)
- Buy a new car
- Save towards buying a home
- Starting your own business
- Further your studies
Long (7+ years)
- Provision for your children's education
- Setting yourself up for retirement
- Create wealth over time
To lay out your financial goals we have provided you with a Goal Grid document to help you write down your financial vision clearly.
Once you have identified your financial goals, the next step would be to select suitable investment products for your goals.
Investment products are also referred to as investment vehicles and are in essence “containers” that house an investment strategy or solution. Each investment product is governed by different pieces of legislation, rules and regulations, which determine how the product must function pertaining to contribution limits, access to the funds, tax, asset class exposure and so forth.
To select a suitable investment product, you must look at certain aspects of your financial goal as you need to match it with the characteristics of the products: time horizon to invest, reason for investing, liquidity, how much you want to invest, level of risk provided for and so forth.
Most popular investment products:
- Unit Trust
- Tax-Free Investment
- Bespoke (Structured Note, Offshore, etc)
- Endowment
- Retirement Annuity
- Pension / Provident Fund
- Preservation Fund
- Living Annuity
To assist you in matching your financial goals to a suitable investment product the below table has been included:
| Financial Goal | Investment Product |
|---|---|
|
Emergency Fund, plan a holiday or travel overseas, buy furniture for your apartment, save for your wedding, save towards buying a home, buy a new car, start your own business, further your studies, provision for your children's education. |
Unit Trust |
|
Setting yourself up for retirement |
Retirement Annuity, Pension Fund, Provident Fund, Preservation Fund |
|
Create wealth over time |
Tax-Free Investment, Unit Trust, Bespoke Products, Endowment |
|
Provide post-retirement income |
Living Annuity |
The above are only examples and must not be perceived as financial advice. Furthermore, this is not an exhaustive list and only certain options are highlighted, as traditionally used across the industry. For instance, unit trusts can also be used to save for retirement.
Educational Material
Once you have selected your investment product(s), you need to choose the most suitable investment solution to “fill” the product(s) with. Remember that the product is only the “container” and the investment strategy / solution would provide the actual substance.
The composition of the investment strategy / solution will determine the performance of the investment, as the solution is a collection of investment assets. These assets which are invested in, are responsible to generate the actual return on the investment.
Asset classes
Investment assets are divided into asset classes, based on similar characteristics and behaviour in the market, whilst being governed by the same laws and regulation. Watch our video on Asset Classes here.
The most widely recognized asset classes:
- Cash and cash equivalents
- Fixed Income (Bonds)
- Property
- Equites Alternatives
Asset allocation
How these asset classes are blended together within your strategy / solution is the biggest driver behind generating poor or good returns. This is called asset allocation and refers to the ratio / percentage each asset class holds, for instance: 50% equities, 20% property, 20% bonds and 10% cash. YPG Session 3 video
The risk-return characteristics of the various asset classes cause a “risk-return trade-off”. The higher the risk, the greater the expected return. Creating an efficient portfolio means that ideally, you want the asset allocation to generate the highest return for the least possible risk taken.
Since different assets have different risks and market fluctuations, proper asset allocation insulates the entire portfolio from the ups and downs of one single class of assets.
Combining Different Assets
The assets that a fund / portfolio is invested in, will also reveal the suitability of the solution as each asset class has its own qualities and the combination of asset classes are carefully considered by portfolio managers. Medium to long-term funds / portfolios will have a much larger exposure to equities and property, compared to short-term funds / portfolios, as they are growth assets and carry a higher risk profile. Funds / portfolios geared for the short-term will consist mainly of interest bearing and fixed income instruments, as growth assets (like equities and property) are too volatile.
Diversification
Diversifying across different asset classes, jurisdictions, industries, companies or sectors brings down the risk of a portfolio and ensures that “not all is lost” when for instance a specific sector plummets. True diversification is therefore measured when looking at correlation – how did the different assets behave in relation to one another? YPG Session 3 video
Correlation
Correlation examines the relationship between various assets and how they move in relation to one another. In other words, we can predict the movement of one asset by looking at the movement of another asset. There are different correlations: the assets can move together exactly, move similarly but not exactly the same, the movement of the one is not influenced by another asset, they move totally opposite and lastly, opposite movement but not exactly opposite.
A well correlated portfolio is key to successful investing and generating a good return, without taking any unnecessary risk.
Watch our video on Correlation here.
How all of this comes together to choose an appropriate investment solution
Portfolio managers are experts in picking and blending financial securities and it’s their responsibility to construct solutions that will provide the best possible return, for the least amount of risk taken.
This makes matching an investment goal with a fund or portfolio easier as an investor needs to take only the few below factors into account:
Investment Horizon and Risk
Time in the market and risk goes hand-in-hand: you can take more risk over the long-run as your investment will have time to recover from periods of high volatility. Therefore, funds and portfolios with risk profiles of “high” / “medium to high” will have investment horizons of 5 years and longer. On the other hand, funds / portfolios with investment horizons of 1 – 3 years, will typically have a “low” risk profile. If you’re saving for a trip overseas in 24 months from now, it would be unwise to invest in a fund that has a “high” risk profile with an investment horizon of 7 years.
Investment Objective
Each fund / portfolio will have a specific investment objective, whether it’s providing a high level of income, protecting or preserving capital and providing investment stability, or seeking aggressive growth over the long-term. This will be a good indication of whether your goal aligns with the specific fund or portfolio. If you are 40 years of age and saving for retirement, you would need an investment solution that is aimed at growth, not providing an income or promising low volatility in the short-term.
Return / Performance
The historic performance of the fund / portfolio should never be the primary reason for selecting it. Historic performance is not indicative of future performance and investors are often disappointed if the investment’s return does not meet or exceed their expectations. If the portfolio manager’s investment strategy is sound, good performance will follow. It is however worthwhile to compare the fund’s / portfolio’s performance with its benchmark to determine whether it’s tracking well and not constantly underperforming.
If your investment goal matches the characteristics of the particular fund / portfolio, you can consider it a suitable solution.
To find out more about our unique investment solutions, visit our Investment Management Section
Take action and implement your investment plan
Once you have decided on your investment product(s) and solution(s), you can implement your choice by opening the investment account(s). Investing directly with Fairtree will provide you with a range of investment products to choose from, as well as giving you access to our award-winning funds and portfolios.
Review your investment plan
Reviewing and updating your investment plan is important, but do not make any emotional or impulsive decisions. As your priorities in life shift over time, your financial goals will undoubtedly change, and a number of unforeseen events may have a massive impact on your initial plan.
However, be careful of not abandoning your initial investment plan too quickly, as it could cost you dearly in the long-run. For instance, don’t stop saving towards retirement, because you want to buy a car that you cannot really afford in the first place. Remember the “why” when it comes to your financial goals – it will help you to stick to your strategy.
When you review the performance of your investment(s), be careful of not falling into the trap of switching strategies, because the return did not meet or exceed your expectations. Investors tend to make irrational decisions when performance is down and miss out on the upside in the future. Typically, investors would sell equities when there is a dip in the equity market and resort to cash, only to find that the market always recovers and that they have missed out on the growth that took place. If your investment strategy is sound, stick to it right to the end – don’t forsake a 7-year plan, if the performance after 1 year is not what you’ve hoped for.
If you are new to the world of investments, it might seem like navigating your way through a dense financial forest: overwhelming and somewhat intimidating. There would be different routes to take, uneven terrain and unusual elements lurking in the shadows.
Learn more about starting your own investment journey, conquering this unfamiliar ground and growing your own financial forest.
The Fairtree Financial Forest
- Soil (financial reality, including “emotions” and “values”)
- Seed (money personality)
- Roots (financial literacy)
- Unpacking spending/ budgeting
- Basic investment concepts (what is an investment, contributions, time and patience, compound growth, including certain projections, risk and return).
- Saving versus investing.
Educational Material
Download material
Setting financial goals begins with identifying what is important to you in life. Whether it is a desire to grow and advance your career through furthering your studies, buying a house to create a place of safety and stability for your family, traveling overseas or saving for a comfortable retirement so that you can spend time with your grandchildren.
Like with goal setting in general, financial goal setting also involves identifying a specific objective, which is measurable, attainable, realistic and linked to a certain time horizon.
A few examples could be the following:
Short (0 – 36 months)
- Emergency Fund
- Plan a holiday or travel overseas
- Buy furniture for your apartment
- Saving for your wedding
Medium (3 – 7 years)
- Buy a new car
- Save towards buying a home
- Starting your own business
- Further your studies
Long (7+ years)
- Provision for your children’s education
- Setting yourself up for retirement
- Create wealth over time
To lay out your financial goals we have provided you with a Goal Grid document to help you write down your financial vision clearly.
Once you have identified your financial goals, the next step would be to select suitable investment products for your goals.
Investment products are also referred to as investment vehicles and are in essence “containers” that house an investment strategy or solution. Each investment product is governed by different pieces of legislation, rules and regulations, which determine how the product must function pertaining to contribution limits, access to the funds, tax, asset class exposure and so forth.
To select a suitable investment product, you must look at certain aspects of your financial goal as you need to match it with the characteristics of the products: time horizon to invest, reason for investing, liquidity, how much you want to invest, level of risk provided for and so forth.
Most popular investment products:
- Unit Trust
- Tax-Free Investment
- Bespoke (Structured Note, Offshore, etc)
- Endowment
- Retirement Annuity
- Pension / Provident Fund
- Preservation Fund
- Living Annuity
To assist you in matching your financial goals to a suitable investment product the below table has been included:
| Financial Goal | Investment Product |
|---|---|
|
Emergency Fund, plan a holiday or travel overseas, buy furniture for your apartment, save for your wedding, save towards buying a home, buy a new car, start your own business, further your studies, provision for your children’s education. |
Unit Trust |
|
Setting yourself up for retirement |
Retirement Annuity, Pension Fund, Provident Fund, Preservation Fund |
|
Create wealth over time |
Tax-Free Investment, Unit Trust, Bespoke Products, Endowment |
|
Provide post-retirement income |
Living Annuity |
The above are only examples and must not be perceived as financial advice. Furthermore, this is not an exhaustive list and only certain options are highlighted, as traditionally used across the industry. For instance, unit trusts can also be used to save for retirement.
Educational Material
Once you have selected your investment product(s), you need to choose the most suitable investment solution to “fill” the product(s) with. Remember that the product is only the “container” and the investment strategy / solution would provide the actual substance.
The composition of the investment strategy / solution will determine the performance of the investment, as the solution is a collection of investment assets. These assets which are invested in, are responsible to generate the actual return on the investment.
Asset classes
Investment assets are divided into asset classes, based on similar characteristics and behaviour in the market, whilst being governed by the same laws and regulation. Watch our video on Asset Classes here.
The most widely recognized asset classes:
- Cash and cash equivalents
- Fixed Income (Bonds)
- Property
- Equites Alternatives
Asset allocation
How these asset classes are blended together within your strategy / solution is the biggest driver behind generating poor or good returns. This is called asset allocation and refers to the ratio / percentage each asset class holds, for instance: 50% equities, 20% property, 20% bonds and 10% cash. YPG Session 3 video
The risk-return characteristics of the various asset classes cause a “risk-return trade-off”. The higher the risk, the greater the expected return. Creating an efficient portfolio means that ideally, you want the asset allocation to generate the highest return for the least possible risk taken.
Since different assets have different risks and market fluctuations, proper asset allocation insulates the entire portfolio from the ups and downs of one single class of assets.
Combining Different Assets
The assets that a fund / portfolio is invested in, will also reveal the suitability of the solution as each asset class has its own qualities and the combination of asset classes are carefully considered by portfolio managers. Medium to long-term funds / portfolios will have a much larger exposure to equities and property, compared to short-term funds / portfolios, as they are growth assets and carry a higher risk profile. Funds / portfolios geared for the short-term will consist mainly of interest bearing and fixed income instruments, as growth assets (like equities and property) are too volatile.
Diversification
Diversifying across different asset classes, jurisdictions, industries, companies or sectors brings down the risk of a portfolio and ensures that “not all is lost” when for instance a specific sector plummets. True diversification is therefore measured when looking at correlation – how did the different assets behave in relation to one another? YPG Session 3 video
Correlation
Correlation examines the relationship between various assets and how they move in relation to one another. In other words, we can predict the movement of one asset by looking at the movement of another asset. There are different correlations: the assets can move together exactly, move similarly but not exactly the same, the movement of the one is not influenced by another asset, they move totally opposite and lastly, opposite movement but not exactly opposite.
A well correlated portfolio is key to successful investing and generating a good return, without taking any unnecessary risk.
Watch our video on Correlation here.
How all of this comes together to choose an appropriate investment solution
Portfolio managers are experts in picking and blending financial securities and it’s their responsibility to construct solutions that will provide the best possible return, for the least amount of risk taken.
This makes matching an investment goal with a fund or portfolio easier as an investor needs to take only the few below factors into account:
Investment Horizon and Risk
Time in the market and risk goes hand-in-hand: you can take more risk over the long-run as your investment will have time to recover from periods of high volatility. Therefore, funds and portfolios with risk profiles of “high” / “medium to high” will have investment horizons of 5 years and longer. On the other hand, funds / portfolios with investment horizons of 1 – 3 years, will typically have a “low” risk profile. If you’re saving for a trip overseas in 24 months from now, it would be unwise to invest in a fund that has a “high” risk profile with an investment horizon of 7 years.
Investment Objective
Each fund / portfolio will have a specific investment objective, whether it’s providing a high level of income, protecting or preserving capital and providing investment stability, or seeking aggressive growth over the long-term. This will be a good indication of whether your goal aligns with the specific fund or portfolio. If you are 40 years of age and saving for retirement, you would need an investment solution that is aimed at growth, not providing an income or promising low volatility in the short-term.
Return / Performance
The historic performance of the fund / portfolio should never be the primary reason for selecting it. Historic performance is not indicative of future performance and investors are often disappointed if the investment’s return does not meet or exceed their expectations. If the portfolio manager’s investment strategy is sound, good performance will follow. It is however worthwhile to compare the fund’s / portfolio’s performance with its benchmark to determine whether it’s tracking well and not constantly underperforming.
If your investment goal matches the characteristics of the particular fund / portfolio, you can consider it a suitable solution.
To find out more about our unique investment solutions, visit our Investment Management Section
Take action and implement your investment plan
Once you have decided on your investment product(s) and solution(s), you can implement your choice by opening the investment account(s). Investing directly with Fairtree will provide you with a range of investment products to choose from, as well as giving you access to our award-winning funds and portfolios.
Review your investment plan
Reviewing and updating your investment plan is important, but do not make any emotional or impulsive decisions. As your priorities in life shift over time, your financial goals will undoubtedly change, and a number of unforeseen events may have a massive impact on your initial plan.
However, be careful of not abandoning your initial investment plan too quickly, as it could cost you dearly in the long-run. For instance, don’t stop saving towards retirement, because you want to buy a car that you cannot really afford in the first place. Remember the “why” when it comes to your financial goals – it will help you to stick to your strategy.
When you review the performance of your investment(s), be careful of not falling into the trap of switching strategies, because the return did not meet or exceed your expectations. Investors tend to make irrational decisions when performance is down and miss out on the upside in the future. Typically, investors would sell equities when there is a dip in the equity market and resort to cash, only to find that the market always recovers and that they have missed out on the growth that took place. If your investment strategy is sound, stick to it right to the end – don’t forsake a 7-year plan, if the performance after 1 year is not what you’ve hoped for.
Frequently Asked Questions
The FAQs marked with a (*) includes engaging material to help you navigate this phase and make wise financial decisions that your future self will thank you for
Investment planning might seem like a dense and overwhelming forest: the terrain is uneven, there would be no clear paths to take, unusual and unfamiliar species are calling it home and the lack of natural light in some spots doesn’t help either.
At Fairtree, we understand that starting your investment journey can be challenging. Our material has been specifically designed to help you grasp the basic investment concepts, set your investment goals, select suitable investment products and to choose appropriate investment solutions. Take the first step with us and explore our plethora of investment material.
“Saving” refers to putting money away over the very short term to cater for future purchases or having a buffer for emergencies. Future purchases can include anything from wanting to buy a new television set in two months or travelling overseas before the end of the year. An emergency fund will protect you and your investments, as you’ll be able to cover any unforeseen expenses without having to withdraw from your investments earmarked for other goals.
“Investing” entails planning to achieve specific investment goals, whether over the short, medium or long term. Some of these goals would be buying a new home in 3-5 years, planning to send your child to university in 15 years, retiring comfortably at the age of 65 years, creating wealth over your lifetime to leave a legacy to future generations and so forth. In essence, you make your money work for you over time.
We have developed a Financial Goal Grid to assist you with setting clear and measurable goals. In 10 easy-to-follow steps, you will be able to identify and refine your objectives.
Short-term investing would typically refer to an investment made for a period of 0 – 36 months. Examples are: planning a holiday or travelling overseas, buying new furniture for your apartment or saving for your wedding.
Medium-term investments are aimed to achieve goals set for about 3 – 7 years from now. These goals could include: buying a new car or a house, starting a business, or furthering your studies in a couple of years.
Long-term investing defines investments made for an extended period of time, usually longer than 7 years. For instance, making provision for sending your children to university, setting yourself up for a comfortable retirement and creating wealth to leave a legacy.
There are a number of different investment products available. Traditionally the most commonly used are:
- Unit Trust
- Tax-Free Investment
- Bespoke (Structured Note, Offshore, etc)
- Endowment
- Retirement Annuity
- Pension / Provident Fund
- Preservation Fund
- Living Annuity
Unit Trusts are investment vehicles mostly used for discretionary investing, proving flexibility and unrestricted access to your money. The product itself does not offer any tax benefits and you will be taxed on net realized capital gains and interest after individual exemptions.
They can be used to achieve most of your investment objectives, to name a few:
- Setting up an emergency fund
- Plan a holiday or travel overseas
- Buy furniture for your apartment
- Buy a new car
- Save towards buying a home
- Starting your own business
- Provision for your children’s education
- Setting yourself up for retirement
A Retirement Annuity is specifically aimed at saving for your retirement, in a tax efficient and prudent manner. Certain investment restrictions apply as Retirement Annuities are governed by Regulation 28 of the Pension Funds Act, ensuring that no unnecessary risks are taken with your retirement money. Accessibility to your money is however limited as you can’t access the funds before the age of 55 (unless in exceptional circumstances) and certain restrictions will apply when you retire from the retirement fund.
Many investors believe that spreading their investment money across different funds or asset managers is diversification. Diversification is much more complicated and includes specific risk-return characteristics, asset class exposure, relationships between funds and correlation. Combining and being exposed to different assets classes will insulate your investment portfolio against the ups and downs as no asset, industry or sector performs the same at any given period in time. Furthermore, holding assets that behave differently from one another is key and this is known as correlation. Watch our short videos on correlation and diversification.
Any type of risk indicator on a fund fact sheet or minimum disclosure document works like a sliding scale and will range from low to high or conservative to aggressive. A “high” or “aggressive” risk indicator implies that you should be comfortable with volatility in the short-term as the fund or portfolio is aimed to provide growth over an extended period and will include a substantial exposure to asset classes like equities and property. A “low” or “conservative” fund or portfolio will consist mainly of asset classes such as cash and bonds and caters for short-term investment horizons, without much volatility. It is important to take the risk indication of a fund or portfolio into account when making your selection, as it needs to align with your investment goal(s).
It is important to review your investment plan at least annually to ensure that you’re still on track to reach your financial goals. If your circumstances or priorities have changed during the course of the year, like getting married or a child being born, it is advisable to adjust your plan as these changes will have a considerable impact on your finances.
If you’re keeping a close eye on the performance of your investment(s), be careful not to become fixated on the performance over short periods of time. Instead of checking your investment statements every month and worrying about the ups and downs in the market, rather focus on the overall objective that the investment should achieve over its duration.
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