Many people perceive investing as a complex process and rely on others to do it for them. While it is highly recommended to involve professionals, my intention with this article is to give you an overview of the process that should be followed.
No matter the nature or amout of the investment, the process followed should be similar. At the end of the day no one merely “invests money”, it is always done for a reason and there is an expectation. The investment process merely unpacks these objectives and defines an appropriate strategy.
The investment advice process that I follow can be summarised as follows:
The Risk questionnaire mentioned above is an importnat part of the process as it gives an indication of
- The risk that you are comfortable taking. Risk appetite varies according to a person’s circumstances and character but at the end of the day the person making the investment must be comfortable with their investment environment.
- The time horizon of the investment. This defines the period you have to take on risk. The shorter the time period the less chance there is to recover from major fluxuations
- The risk required. Having regard to the investment objective and the time available, what risk environment is required to achieve the objective. If this is different to your risk appetite it will require a conversation and a likely compromise, but taken with the understanding why.
The following is an example of the risk questionnaire
Based on the responses to this questionnaire, your risk appetite is defined as follows:
- 0 – 41 Low
- 42 – 61 Conservative
- 62 – 81 Moderate
- 82 – 101 Moderately aggresive
- 102+ Aggregressive
All of the information identified in the above processes is then used to select which invesments vehicles will be suitable. The investment vehicles include retirement annuities (RAs), Tax-Free investments, Endowments, Flexible investment options etc.
Once the investment type is identified then the funds need to allocated to funds that will most likely achieve the investment expectation and are suitable for the type of investment.
Momentum Wealth have classified their funds so that that align with the advice process outlined above and recommend the following local and international fund solutions.
Local Fund Solutions
International Fund Solutions
Conclusion
Adherance to this process ensures that you understand the rationale behind the investment strategy. Unless any of the investment objectives or parameters change significantly the investment strategy should remain appropriate. This is especially important during times of investment market turbulance when it is tempting to reorganise the investment funds selected. There will always be distractions but having agreed the objectives and the strategy making ad hoc changes merely undermines the process and usually compromises the outcome.
