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5 outdated beliefs that hurt your portfolio’s performance

My Goals

5 outdated beliefs that hurt your portfolio’s performance

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After so many years in the investment industry one would think that I’ve mapped out the perfect financial plan for myself by now. Well, I thought I had. But the truth is that the majority of corporate employees are burrowed so deeply into their areas of specialisation that, if the morning breeze carried news of any exciting developments in their industry, they’d hardly catch a whiff of it.

The past two months’ sabbatical has allowed me to lift my head above daily chores to explore what’s new and note-worthy on the local investment scene. And my heart missed a beat. How and when did I fall this much behind?

“Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.”

 ―  John Kenneth Galbraith

Here are my five main investment beliefs that are being shaken up this year:

1. The best investment platform will continue to lead the pack.

I started full-time work at 21 but until age 28 I invested nothing – nada. All my savings went into travelling. Then I spent about two years working in the UK, cozying up with several adults in one house to save costs and squirrel away savings for my first apartment back home. Re-entering the SA corporate scene, I invested the bare minimum my employer would allow in the company retirement fund, so that there would be money left of my salary every month to kill my bond before age 35. It’s only when I left the company shortly after reaching that milestone that I decided – instead of blowing everything on overseas travel as usual – to rather preserve my retirement savings. It was time to investigate the investment platforms available in SA at that time.

In 2007 even the employees of its competitors agreed on one thing: based on performance, ease of transacting and client service Allan Gray stood head and shoulders above the rest.

For the first time in SA, retail investors:

  • Could open an investment account online
  • No longer needed to make an EFT and submit proof of payment (Allan Gray can take the money directly out of your bank account)
  • Didn’t need to supply FICA documents upfront for a retirement investment
  • Could transact online, i.e. withdraw or add money to an existing account in seconds
  • No longer needed to pay up-front fees

In 2019 all of this sounds pretty ordinary, but back then it was revolutionary. Allan Gray was the exciting new kid on the block tech-wise. Add to that a call centre packed with graduates that all underwent a 6-month rigorous training program before being let loose on clients, a pioneering client management system so you never have to repeat yourself or explain anything about your investment history, a simplified product range, plain English contracts and above-average long-term performance, choosing an investment platform was a no-brainer.

But the world has changed and I didn’t bother to keep up with other product providers. Until now.

Other than client service that’s in a class of its own and perhaps the automatic collection of money from your account and a simplified product range, most of Allan Gray’s advantages in 2007 have been crowded out by competitors. Currently Allan Gray offers only one provider of passive investment (index trackers) on its platform. And unlike other platforms like Glacier, it’s not yet offering exchange-traded funds (ETFs), all which is making it an expensive way to invest. In the days of double-digit performance, one didn’t notice the high fees that much, but after five years of almost flat returns relative to inflation it’s become impossible to ignore the ongoing fees of the platform’s active fund offering and Allan Gray’s own admin/platform fee on top of those. Fees are clearly busy chipping away at my portfolio returns.

(On the topic of fees, it’s easy to become overwhelmed by all the different types of charges. I simplify it for myself by investigating three categories of fees for each product provider:

  • fees at an adviser level, which is not applicable to DIY or so-called direct investors
  • fees at a platform or product level, which are also called the admin fees
  • fees at an underlying fund level, whether you choose a unit trust fund or an exchange-traded fund (ETF). The fees at fund level are summed up by the total expense ratio (TER) of your chosen underlying unit trust or ETF and found online on its fund fact sheet or minimum disclosure document)

This is an excerpt from Go Freedom. See the full article here. Reposted with permission.

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I’m Lizelle and I have no intention to retire from a working life. Only from my corporate life. I’ve been down many paths over the past 25 years: actuarial technician; investment performance analyst; product manager; hedge fund manager; client experience designer; finance forum owner; communication specialist; coffee stall owner; and Nia teacher (much fun). And I've been on a few sabbaticals, being a strong believer in proper breaks. I’ve been a salaried worker and a freelancer, and definitely prefer the latter. So, my next goal is to up-skill, cross-skill, invest in how I see my future self and save up some reserves, so I can return to the freedom of flexible work – for good. To me, financial freedom is a process; it's not an absolute destination.

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