Positioned for investment growth

July marks Savings Month. Midway through the year, it’s the perfect opportunity to take a fresh look at your investments. Are you saving enough towards your goals for the future? And – equally important – are you investing optimally?

The ultimate outcome of your investments will depend not only on how much you save and how long you remain invested, but also on the growth your investments generate. It is therefore important to ensure that you’re well positioned to target good long-term growth.

Investment growth: Two key considerations

1. Investment returns

Your primary driver of growth will be the returns your investments generate. If you opt to invest with an asset manager (as opposed to investing directly in shares or securities), your choice of manager will be a crucial determinant of these returns. After all, you’re trusting this manager to make asset allocation calls and security selections on your behalf.

So what do you look for when making your choice?

Importantly, while a solid track record is vital, you need to consider more than past performance. The best asset manager at one point in time will not be the best manager all of the time, and different managers flourish in different types of investment environments. In addition to performance, you therefore need to asses a manager’s investment approach, evaluate its key strengths and consider whether its strategy is suited to prevailing market conditions.

Alternatively, you could invest via a multi-manager and allow investment professionals to conduct these analyses for you.

Simply put, a multi-manager is an asset manager that invests in other asset managers. A multi-manager is therefore dedicated to understanding asset managers both quantitatively (by looking at performance, potential risks and possible sources of future returns) as well as qualitatively (by considering the business as a whole, along with key members of staff).

In addition, a multi-manager will seek out complementary asset manager combinations. This allows for greater diversification (which lowers investment risk) and aims to increase the consistency of returns throughout all market cycles.

2. Investment fees

All fees you pay on your investment will eat into your returns. You therefore need to ensure that these fees are kept as low as possible.

What should you be looking out for?

Firstly, it is important to ensure that all your fees can be clearly disclosed: You should be able to see exactly which services you’re paying for, and precisely how much you’re paying for each. This provides a better understanding of your investment costs and allows you to compare these costs across different product providers and asset managers.

Secondly, you should seek out competitive rates. Ensure that your asset management fees are reasonable, that the administration fees your product provider charges are low and that the advice fees this product provider allows for are negotiable (as you can then set these fees in consultation with your financial intermediary).

Finally, you could also consider the types of unit trusts you include in your investment portfolio. Actively-managed unit trusts (for which an asset manager chooses its own share combinations) have the potential to deliver greater returns than the market, but this comes at a cost. On the other hand, passive unit trusts or index trackers aim only to match market performance, and are therefore cheaper. Depending on your investment objectives, it may be worth considering a combination of both actively-managed and passive unit trusts in your portfolio.

So as we enter Savings Month, see it as an opportunity to evaluate both how much you’re saving and also how you’re going about doing so. By targeting consistent returns and keeping investment costs low, you can ensure that you’re positioned for good investment growth going forward.