Page 32 - Waterfall Issue 9_2022
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Waterfall News

























              “One sure way of being disappointed
                   by equity markets is to avoid
                 investing in times of uncertainty,
                  coupled with an inappropriate

                    investment time horizon.”



        markets is to avoid investing in times of uncertainty,   flow management plan tailored to your own investment
        coupled with an inappropriate investment time horizon.   needs. The previous graph also depicts the time horizon
                                                              required to achieve certainty around the expected returns
        In the short term, one should expect growth assets to   of equities. Cash flow management accounts for the time
        underperform at times. However, over longer periods,   horizon of riskier assets (in the short term), balanced by
        the inflation-beating returns of equities cannot be   requirements around immediate income, emergency
        ignored. In the graph below, this concept is explained   expenses, and other more interim capital requirements
        in the return profile of the PSG Wealth Creator Fund   that need to be planned for. This ensures a more robust
        of Funds (a local equity unit trust) since inception.  financial plan where savings can be invested in growth
                                                              assets aligned with appropriate time horizons.
        PSG Wealth Creator FoF: Distribution of
        historical rolling returns                            DON’T FOLLOW THE NOISE IN THE
                                                              MARKETS – TIME IN THE MARKET IS WHAT
                                                              COUNTS MOST
                                                              After the sell-off in the first five months of 2022, especially in
                                                              the US stock markets (which were down for eight consecutive
                                                              weeks), it is easy to extrapolate (as many forecasters are
                                                              doing) and claim that market returns will be lower than
                                                              the average for the next decade, after the phenomenal
                                                              decade from 2010 to 2019. It is, in fact, not necessarily true
                                                              that the US stock market had outstanding returns for this
                                                              past decade. Out of the last nine decades prior to 2019,
                                                              investors in the S&P 500 would have experienced only the
                                                              fourth-best decade out of these nine (Morningstar). This
        Source: PSG Wealth research team, Data as at 31 May 2022  illustrates that it is much better to have time in the market
                                                              than trying to time the market, so make sure that you have
        THE IMPORTANCE OF RISK PROFILING AND                  adequate cash flow management to invest appropriately
        ALIGNING WITH RISK APPETITE                           across the various asset classes in your portfolio.
        Risk profiling and risk appetite tend to be associated with
        gambling. Investing with an appropriate investment horizon   A qualified and competent financial planner will analyse
        (so that you don’t need to withdraw your invested assets)   your individual needs and aspirations and, taking the above
        is key to mitigating both idiosyncratic and systemic risks.   factors into account, co-craft a robust plan with you to help
        To mitigate the risk of volatility related to asset class choice   you achieve your financial goals. Although the best time
        and investment strategy, it is crucial to have a robust cash   to start was yesterday, the second-best time is today.


        30  Waterfall Issue 9   2022
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