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Investment Strategy
Friday, December 1, 2006
The past is not the future

Three years, as a benchmark period for investments, is often quoted as the minimum yardstick for assessing potential future returns.

However, Stanlib warns against following this ‘conservative period’, because the last three years have been a time of exceptional equity gains, running to more than 40% a year in some cases.
“By quoting only a three-year track record under these circumstances would create the misleading impression of great strategic growth even across a conservative timeframe,” warns Patrick Mamathuba, the company’s chief investment officer.
“That neat three-year fit creates a potential pitfall.”
Mr Mamathuba adds, “By now, the consumer is probably aware of the danger of looking at simply the last three months and may think that the last three years is the prudent thing to do. It usually is … but this time around further yardsticks are needed.”
Stanlib advises consumers to consider several periods, including the last year, three years and five years while bearing in mind the exceptional JSE gains since 2003.
“We work with thousands of investment advisers and are confident the vast majority of products are marketed in a responsible and professional manner. Even so, we must remain wary of the three-year pitfall.
“In addition, share markets always contain an element of risk. Historically, equities are engines of long-term wealth creation and deserve a place in any portfolio with a mandate of achieving inflation-beating returns over several years.
“But the risk of short-term loss is always present. Furthermore, the probability of the next three years matching the last three is quite remote.”
 

Copyright © Insurance Times and Investments® Vol:19.6 1st December, 2006
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