1. What makes my investment risky?
Understanding where your money is being invested and how it’s working for you is the single most important aspect of active wealth management. At Stringfellow Investment Specialists, we define risk as:
- Not knowing what you are investing in.
- Not being in an investment that suits your personal investment goals.
Any investment that does not meet your personal goals for growth is inherently risky. Ask your advisor how they define risk and ensure their definition aligns closely with your own views and objectives.
2. How do I contribute to my investment product?
The most common contribution methods are via a monthly debit order or a once off (lump sum) payment into the investment. Each has its own merits and drawbacks, and each fund will have its own set of rules and policies. It’s vital that you clearly understand these rules from the outset, and that you make yourself well aware of any penalties you might incur should you choose to cancel the debit order.
3. How do I exit my investment product?
Are you hoping for a regular monthly income or looking for long-term investment? It’s important to define a time horizon that best meets your personal goals.
In each case, it’s important to understand when you will have access to the investment. Will you be able to make investment decisions at any time, or are there predetermined time limits during which the product will not accessible?
Important questions to ask include whether or not the investment will be available entirely on maturity, or whether there will be a monthly “income for life” portion. Most importantly, make sure you clearly understand what happens in the event that you want to withdraw your investment earlier than originally agreed, and what potential penalties you may be liable for as a result.
4. What happens to my investment when I die?
While death is always an uncomfortable discussion, having a sound plan in place for this eventuality goes a long way towards reducing the impact on your family. Make sure your advisor gives you a clear understanding of the legislation governing your particular investment product, as most have their own specific set of rules and regulations in the event of your passing, some of which may conflict with the terms of your last will and testament.
5. How does the tax work?
Tax regulations can have a considerable effect on the total return of your investment, and can either act as a tax benefit or tax burden, depending on the different actions and options chosen throughout the investment’s lifespan. As such, it is important to discuss the three tax phases of the investment life cycle and how they are treated with your advisor, based on the type of investment.
- What happens when I contribute?
- What happens during the life cycle of the investment?
- How am I taxed at the end of the investment?
Clarification of these three questions will better prepare you in understanding your obligations and the overall benefit you might potentially derive from each different investment option.
6. What is the nature of my underlying investment?
Just as a house is composed of different components, so too is your investment. Homes are built to weather the elements in much the same way investment funds are structured uniquely to manage different risk profiles. That is why we find that certain funds place more or less emphasis on different types of investment assets. How much cash makes up the investment versus shares in a company, or the ratio of property to bonds? More importantly, you need to understand your own level of aversion to risk, and question how the investment meets your needs, expectations and time frame.
7. Why did the advisor recommend the particular set of fund managers?
While a little more complicated and nuanced to understand, asking about the investment approach and past performance of the various fund managers your advisor has chosen is a prudent way to play a more proactive role in your investment strategy from the onset. This is particularly important when it comes to making sure that the strategies employed by the various fund managers align with your own investment objectives.
Despite the assumed superior performance of ’big name’ managers with ‘big name’ marketing budgets, these investment products seldom perform as well as expected, and tend to be inherently risky, particularly in the long-run. On the other hand, more agile and specialised fund managers who bring a different skill or value to the various portfolios could be better suited to your particular strategy, and be better able to deliver the returns you are expecting, whilst exposing you to less risk.
8. What happens if the economic environment changes drastically?
Even the most secure investment is vulnerable to the ebb and flow of global economic fluctuations and its impact on the world markets. Understanding how your investments will have to change in such an economic environment, and if the fund managers will make appropriate changes on your behalf, is vital to mitigating this risk. Alternatively, a multi-manager investment approach, which comprises multiple specialised funds, is an excellent option for wary investors. In this case, each fund may invest across different sectors and markets, or have managers investing in the same asset class but using different investment styles. This offer you the benefit of limiting your investment’s exposure to unexpected changes, and gives multi-managers the ability to adapt and adjust the fund whenever a change in the economic environment requires it.
9. Do I need to change my underlying funds on a regular basis?
As always, the key to a great investment is making sure that the fund you select with your advisor is aligned with the specific goals and objectives for your investment’s growth. An advisor worth his or her salt will help you select the right funds from the onset of the investment, and while it is usually possible to change your underlying funds, a sage advisor will steer you away from this as a result of the adverse tax implications. Again, this should not be necessary if you have a multi-manager investment approach, as the manager will make these adjustments on your behalf.
10. What if I want to change my underlying funds?
All the planning in the world cannot prevent life from happening. Sometimes your financial situation will change and your investment goals will change along with it. In this case, you will definitely want the ability to make changes without penalties and/or restrictions. For example, with some providers you are limited to a small range of funds, whilst others offer you a far wider selection.
How can we help?
At Stringfellow Investment Specialists our accolades as well as the dedication and commitment we show each client and the money they’ve invested with us, speak for themselves. As one of the few boutique asset management companies to boast a 5 star Morningstar rating in 2015, a 5 crown Plexcrown rating, as well as the coveted Raging Bull award for the best performing South African multi-asset low equity fund in 2014, we are uniquely qualified to meet your investment goals.