Our smart calculators and expert advice will guide you as to how to draw a sustainable income, and we haves stripped the unnecessary complexity out of your portfolio choice by narrowing it down to one of three: High Equity, Medium Equity, and Low Equity. But which is right for you?
Before you can make that decision, you should first understand the difference between growth and defensive investments.
Growth investments (shares and property) typically generate the highest returns over the long-term. However, the return over short periods (less than 5 years) is unpredictable and can even be negative.
In contrast, defensive investments (Bonds and Cash), tend to generate lower returns over long periods, but typically produce more stable short-term returns.Using over 100 years of actual returns, we find that over periods of five years and longer, a High Equity Portfolio has always delivered superior returns with similar or lower risk than Medium or Low Equity Portfolios. This means that for long-term investors (five years and longer) a High Equity Portfolio is a higher return, lower risk investment than a Low or Medium Equity Portfolio.For periods shorter than five years, the High Equity Portfolio has produced lower returns in poor market conditions.
Hence, investors with a long time horizon should be invested with higher exposure to growth investments (the 10X High Equity portfolio), while investors who have a shorter time horizon (Less than 5 years) should decrease their exposure to growth investments and increase their exposure to defensive investments (such as the 10X Low or Medium Equity portfolio).
The best working example of this approach we can give is to take a look at how a R100 investment in each of the three 10X Portfolios performed during and after the global financial crisis of 2008/9.
- The Low Equity Portfolio incurred the smallest losses over the crisis period, but by December 2013 had the lowest return of the three - R178.
- The Medium Equity Portfolio weathered the crash better than High Equity, but by December 2013 had returned R192.
- And while the High Equity Portfolio took the biggest hit over the crisis, by December 2013 it had gone on to return more than double the initial deposit of R100 shown on the graph – R204.
That is why it’s vital that you’re invested in a portfolio that best meets your life-stage needs and your time horizon. It’s not your appetite for risk that should determine how much risk you assume –It’s time.
If you have any further questions about your portfolio choice don’t hesitate to get in touch with one of our experts.