How should I invest R1.2 million for maximum capital growth?
You can divide your capital between an all-offshore equity portfolio and SA stocks and bonds.
By jonathan brans
Sep 7, 2022 09:30
I am a man, 65 years old, single and still working. No debt. I just sold my primary residence. I want to invest R1.2 million in stocks over a period of five years. Any dividend yield will be reinvested. I’m looking for maximum capital growth, not dividends. Medium risk profile. I just opened an EasyEquities account, which is empty and waiting to be funded. No suggestions?
This is an interesting question that should give rise to serious reflection among advisors.
Let’s start by breaking down your question:
- You seek maximum capital growth;
- You indicate that the duration of your investment is five years; and
- You declare that you have a medium risk profile.
Looking at your requirements above, it’s worth pointing out that points 2 and 3 are actually in slight contradiction to point 1.
The data shows that over the long term (over 10 years), equities tend to significantly outperform other asset classes. However, over a five-year period, this has not always been the case. Additionally, you indicate that your preferred risk profile is moderate (medium). This indicates that you may not be entirely comfortable with a 100% stock portfolio. Remember that while stocks tend to be the best performing asset class over the long term, they are also a volatile asset class with many bumps along the way.
The short answer to your question regarding maximum capital growth would be to invest in a 100% equity portfolio/fund that has a slight bias towards the offshore (developed) market and leave that money for at least 10 years.
However, you have stipulated that your time horizon does not match this and you may be uncomfortable with the volatility encompassing an all-equity portfolio. That’s absolutely fine, and there are still a number of solutions that may meet your needs.
It is important to make sure that you do not consider the 1.2 million rand as a sum of money. You can indeed divide this capital in order to give yourself the best chances of material growth while ensuring a certain stability in the portfolio.
South African bonds currently offer relatively attractive yields and also have the ability to smooth overall portfolio volatility somewhat.
As far as an overall asset allocation goes, something like the following might suit your needs and lead to decent growth:
The asset allocation above has a good balance between local and foreign equities as well as significant exposure to South African bonds. The risk profile of a portfolio like this would be described as moderate to aggressive.
This solution is of course designed solely on the basis of the information provided by you. In order to compose a more definitive investment proposal, it is imperative that you provide more information on things such as your tax profile, any other investments you may have and any ad hoc cash needs that may arise.
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