4 easy steps for a successful investment portfolio

Feel free to reach out to PSG Wealth Manager Schalk Louw directly.

This made me realise that despite working with investments and the fact that it may sometimes seem straightforward, there will always be guidelines and steps to follow to make compiling a personal investment portfolio easier.

Step 1 – Speculators are not investors

It’s been proven that investments delivers the best returns over the longer term. Let’s look at the investor who decided to invest in the JSE stock exchange in May 2008: At that stage, the market took a 19% drop in three months, making it any speculator’s dream investment. But had you invested then to benefit from a possible upturn, you would only have lost a further 31% of your capital three months down the line. The investor (not the speculator) who invested in May 2008 and remained steadfast would have achieved a return of more than 4% above inflation (CPI) nearly seventeen years later. This period included not only one crash but two and a few other corrections as well.

Graph 1: FTSE/JSE All Share versus CPI+4% with 2 crashes included (Source Financial Express)

I have said this before: There is no crystal ball to which investors can turn, nor is there one for the experts.

Not even the greatest investment experts get it right all the time, and there are historical returns to prove it. Only 11 of the 106 general equity unit trusts (10% of the fund managers) were able to beat the equity market’s total return in the past five years (up to 31 January 2025). Rather, focus on time, not timing.

Step 2 – Diversify

This is a simple concept, and it is as old as the hills. It means lowering risk in your portfolio by distributing your investments across different assets.

I see many investors wrestling with this concept, mainly due to emotions or personal preference. One investor may have lost capital when investing in shares over a short period, shifting his focus to the money market. Another‘s capital may have soared to great heights due to property investments, leaving her unwilling to invest in anything else. Historical data has proven that good diversification or the proper distribution of investments not only lowers risk but can also yield higher returns. 

Step 3 – The power of compounded returns

This concept requires the same type of self-control that one has to exercise when trying to avoid getting into more debt. Make your investment, and avoid any withdrawals. The investor that exercised self-control over the past 20 years by investing R100 000 in shares (50% FTSE/JSE All Share and 50% MSCI All Country World Index) in January 2005 would have increased their investment to a whopping R1.42 million. If they had withdrawn 10% of that capital each year however, their investment would only be worth R173 000 today. Now we understand why Albert Einstein saw compounded growth/interest (growth on growth) as one of the strongest forces in the universe.

Step 4 – Invest in what you know

Do not turn your investments into mere numbers on a page. If you invest in shares, you should know that you are investing in companies, and you should make sure that you know and understand these companies. Take Richemont for example. Richemont isn’t just a name or a share; it is a luxury goods company, and you become a ‘co-owner’ by buying its shares. This makes it crucial for you to know what Richemont does, what its profit history looks like and how strong its management team is.

The same applies to an investment in a unit trust or an exchange-traded fund (ETF). It is not just about a name or the returns from the past year in which you are investing. It is a long-term commitment, which is why it is so important to know exactly what you are investing in and who is managing your hard-earned capital.

Remember, the only person that cares more about your capital than you do is your financial adviser, which is why working with a professional is key to your investment journey.