Many people are not interested enough to take the time to learn all the ins and outs, or are too intimidated to start. But that doesn’t mean that they don’t want sound investments; they want something hassle-free.
I can appreciate that. Just because someone doesn’t like cooking doesn’t mean that they don’t deserve to eat well. So, when I recently read an article by an American columnist that suggested that people only ever need to invest in three different products, I was instantly interested. Can we really make investing that easy?
It didn’t take long to come up with the answer: “why not?” Essentially, there are three basic rules when it comes to investing:
2. Don’t invest in anything you don’t understand
3. Stay invested
Of course you can search the web and find hundreds of articles with many more “golden rules” than that. But I think anything more than the above is just detail.
If we start with the first rule, diversification at its most basic means spreading your money across more than one asset class. For years, equities, bonds and cash have been the three main asset classes, and for years they have done the job. If we want to keep investing simple, let’s stick to those three.
Rule two tells us not to over-complicate.
Thankfully, we have exchange-traded products that allow us to buy an asset class. That is what index-tracking does. It gives us access to a block of underlying assets that act as a proxy for the asset class as a whole. The Satrix slogan “own the market” is a pretty good description of what these products do.
And the third rule is the most simple of all. Put your money in, and don’t take it out just because you see something else that looks better.
Investors lose piles of money every year by “chasing performance” – moving their money into those places that have shown good recent returns. The problem, of course, is that this performance has already happened. By the time you move in, it may already be too late.
So where does that lead us?
We need three products, one to give us equities, one to give us bonds, and one to give us cash. The RMB Top 40 ETF is the cheapest JSE-focused index-tracker on the market at a TER of just 0.2%. That takes care of equities.
The NewFunds Govi ETF gives us exposure to the bond market at a TER of just 0.27%. So much for bonds. The NewFunds Traci ETF tracks the three-month cash index, and at a TER of 0.19% it’s as cheap as chips. There’s your cash exposure.
So we come up with a portfolio that invests 40% apiece in the RMB Top 40 and NewFunds Govi ETF and the 20% remainder in NewFunds Traci ETF.
Many of us will immediately think: “I can do better”. But here’s where it gets interesting. For the year to September 20, RMB Top 40 ETF notched up a 26.68% return, NewFunds Govi ETF registered 3.63% and NewFunds Traci ETF 5.33%, according to Profile Media research.
Over the same period, only 33 out of 113 local multi-asset low equity funds (29%) returned more than that. So, if not even a third of professional fund managers can do better than this portfolio, then there must be merit in it.
Yes, it is very conservative, but over time that should mean a fairly stable ride. This is a starting point for learners, or for someone who wants a hassle-free portfolio; do you really need anything more?
For more, visit Moneyweb’s Click-a-unit trust/ETF tool.