Keep it simple but not stupid
For the average person, investment can be confusing and stressful, usually resulting in a number of unhelpful scenarios – from a multitude of investments all over the place (under the guise of ‘diversification’) to none at all. In a number of blogs I have recommended a single page summary of all investments, with all the important information, this can become the cover page for your Red File (the one ‘go to’ financial file – look under ‘Organise’). The ‘one sheet’ for investment summaries I have used for my clients has evolved over time, and the latest iteration is now being rolled out, and am letting those of you that aren’t lucky enough to be a client to have a look behind the scenes if you want/can DIY.
Ideally all your investments should be on one page, not just the ones your financial advisor looks after for you – in other words your savings accounts, unit trusts and stock portfolios should be there too. Why? It’s important to look at the entire investment portfolio holistically, and to determine the ‘asset allocation’ – this is the split between the big 4 asset classes – Equity, Property, Cash and Bonds. The blend of ‘asset classes’ is going to affect the riskiness of the investments (the chances that you could lose chunks of capital in the short or medium term) as well was the potential ‘returns’. The ‘asset class split’ can be got from the fund fact sheets, and these need to be checked once a quarter. My excel sheet ‘looks up’ these splits from a master fund fact sheet I have and change every quarter.
So, what is needed?
- Provider name and policy number : In the underlying excel sheet I keep all the other info like inception and maturity date, original deposit etc that you only need for reference.
- The list of funds/stocks/assets per contract/investment – You need this so that you can work out the asset allocation. Within each portfolio, it’s important to monitor each of the Collective investments monthly (using the monthly fund fact sheet. I have a list of 24 collective investments that I have done my due diligence on, and watch. In my experience this is as many as I can really keep track of without becoming an investment nerd and neglecting the other aspects of my client’s personal finances like medical aid, risk, short term- insurance, estate and retirement planning. There are over 1000 funds out there – it is impossible and unwise to use more than you can keep an eye on. Changing funds in my portfolio preferences doesn’t have to happen often – maybe once every 3 years or so. Just because a fund is high profile, don’t assume it is going to be a good performer! It might well be below average, and its high TER (fees) reduce the return even more. I track the ‘24’ behind the scenes, and if they significantly underperform their peers, I do some in depth research to find out why before making the decision to dump them (and then make that recommendation to all my clients – those switches are usually free and can be done online).
- Type of investment – retirement annuity, Pension preserver, Endowment, Flexible Investment, Stock portfolio, TESA. Each of these have different tax, asset class restrictions and maturity rules.
- Current value – obviously
- The percentage that investment is of the whole portfolio – this is needed to work out the average performance and average IRR for the entire portfolio (you can’t just add it up and divide it by the number of portfolios). IRR = Internal Rate of Return. IRR is the most accurate way to determine the true performance of a portfolio because it takes all the incomings and outgoings in the fund – which can make ordinary calculation quite complicated. The TER (Total expense ratio) only tells part of the fee story – and that nasty little penalty called a performance fee that asset managers charge when the market does its job – and is often not found in the TER. The equation for IRR is the stuff of nightmares and needs a financial calculator and a stiff drink. Fortunately the LISP platforms (like Investec) can usually provide it at the click of the button. The ‘other’ platforms usually require 2 weeks and a spare actuary. There are some free apps that will do it for you, but you’re going to need all the back history which is a mission.
- Year on year performance for that ‘policy’ or contract. The IRR gives the long term actual growth, net of fees etc.
Asset allocation per fund – I have a template of the ‘24’ I use and my excel sheet refers to this. The template is checked and updated monthly. Fund fact sheets come out as long as 6 weeks later so I track the NAV (net asset value) on the first of the month using Sanlam iTrade’s charting option. Asset allocation is key to determining the balance between risk and return in your portfolio. The ideal asset allocation needs to be determined in a chat with your Financial Planner. There are numerous variables that you need to take into account: Your age, age at which you want to stop working, passive income likely after retirement, the income you want when you stop working, how close you are to stopping work, and how much ‘fat’ is in your retirement fund, your risk appetite, your goals and objectives – and more besides.
And there you have it. One page with everything you need.
Action: Get organised with your Red File (divider download HERE) and get your investments distilled down to one page for the file (and your peace of mind). Control is King – not Cash.
You are welcome to share on Twitter or LinkedIn (buttons below)
Author Dawn Ridler