Goal setting
Definition of clear investment objectives (e.g. return, security, liquidity, time horizon).
Risk diversification (Diversification)
Allocation of capital across different investment categories in order to reduce overall risk.
Risk tolerance
Understanding the level of risk an investor is willing and able to tolerate (conservative, balanced, aggressive).
Investment horizon
The time period for which the investment is planned (short-term – long-term).
Liquidity
The ability to easily convert an investment into cash without significant loss of value.
Cost assessment
Evaluation of fees, management costs and other charges.
Discipline & consistency
Avoidance of emotional decisions – adherence to the investment strategy and objectives.
Review & rebalancing
Regular monitoring of performance and adjustment of the investment strategy when necessary.
Risk reduction
Portfolio diversification is a fundamental principle that contributes to reducing investment risk. Instead of investing all capital in a single asset, funds are allocated across different asset classes, such as equities, bonds, real estate, etc. This reduces exposure to the performance of any single asset.
Balanced performance
Diversification enables the achievement of more balanced portfolio performance. Even if some assets underperform, others may perform better, offsetting returns and providing greater long-term stability.
Flexibility
Diversification offers greater flexibility within a portfolio. As market conditions change, asset allocation can be adjusted to reflect new circumstances and support the achievement of investment objectives.
Risk identification
The first step in effective risk management is identifying potential risks that may affect an investment. This may include analysing factors such as market volatility, inflation, geopolitical developments, etc.
Exposure reduction
After identifying risks, measures can be taken to reduce exposure. This may include portfolio diversification, the use of hedging instruments, or the selection of more conservative investments.
Ongoing monitoring
Risk management is not a static process. It requires continuous monitoring and adjustment as market conditions and risk factors evolve. Strategies should be reassessed in line with developments.
Patience
Long-term investing requires patience and resilience. Markets may experience short-term fluctuations, but over the long term they tend to deliver better performance.
Compounding
A long-term horizon allows investments to benefit from compounding. Capital has more time to grow and realise the potential benefits of investing.
Stability
By adopting a long-term framework, greater stability in portfolio returns can be achieved. Temporary fluctuations can be offset by long-term performance.
Risk allocation
Investing across different asset classes, such as equities, bonds, real estate and commodities, helps distribute portfolio risk. If one asset class declines, others may perform better, reducing overall risk.
Diversified returns
Different asset classes respond differently to market changes. This can result in diversified returns, smoothing volatility and providing more stable overall performance.
Growth opportunities
Investing in a variety of asset classes can offer greater growth opportunities. As markets and conditions change, certain asset classes may outperform, enhancing overall portfolio returns.
Performance monitoring
Investment performance should be monitored systematically and progress towards objectives assessed. This enables the identification of deviations and the implementation of corrective actions.
Asset allocation rebalancing
As markets evolve, the initial asset allocation may need adjustment to maintain the targeted strategy. Periodic rebalancing is essential to preserve diversification and effective risk management.
Strategy adjustment
If objectives or priorities change, the investment strategy may need to be adjusted. This may include changing asset allocation or selecting different investment products.