Well versed

It’s important to stick to the fundamentals when building a diversified portfolio

Well versed

As the world heads into 2025, geopolitical tensions and a shifting economic and political landscape offer a mix of opportunities and risks in global markets. Successful investing in volatile times doesn’t require multiple finance degrees but rather a solid approach. Ultimately, the basics provide a roadmap for sustainable and effective diversified investing.

‘There are fundamental components investors should consider when building a resilient investment portfolio,’ according to Nongcali Rubushe, Head of Retail Group Operations and Strategic Functions at the JSE. ‘Their risk tolerance – be it low, medium or high – their financial goals and investment horizon – long, medium or short term – should be taken into account. These variables are key selection criteria that support the investor’s decision-making process of selecting the appropriate asset classes for their diversified portfolio. This must be mentioned in parallel to taking global and local trends into consideration.’

She says multiple strategies may be leveraged that reflect on the investor’s approach. ‘Beginner investors would do well to commence with ETFs and AMCs [actively managed certificates]. These consist of baskets of funds that have already have growth and risk data factored into consideration.

‘For more seasoned investors and those interested in individual stocks, they would do well to consider researching the company of interest, and consider conducting their own analysis to determine whether the company meets their investment criteria. As building a portfolio is highly personalised, it’s difficult to provide a hard-and-fast percentage allocation rule, though in general, over-investing in any one asset class is considered high risk.’

Navigating economic fluctuations requires a nuanced approach that balances risk and opportunity, she says. ‘Economic fluctuations affect different markets – both regions and industries – differently, and an analysis and understanding is required to identify the risk and opportunity that the fluctuation creates.

‘A well-diversified portfolio consisting of uncorrelated assets should translate into lower risk from the onset as opposed to an undiversified portfolio. It’s important to note there is also a risk with over-diversification, which may result in lower returns and higher fees. A registered investment adviser can assist where a novice investor is struggling.’

It is vital that investors adjust their portfolios over time to align with life stages and changing financial goals, she says. ‘It’s critical that investors develop a behavioural practice of firstly reviewing their investment portfolio at defined intervals, such as quarterly or annually; and, secondly, rebalancing their investment portfolio as their life changes. An investor would do well to assess their current portfolio by obtaining clarity on planned versus actual portfolio performance, and identify opportunities for better performance.

‘Investors should identify their change in life phase and its impact to the current plan in time and financial terms. They should also translate the revised goals into a revised investment plan, identify the new time frame and quantum goal, identify the asset class that is most suited to achieve the goal, and identify how reinvesting and rebalancing the portfolio will impact the overall risk. Again, where investors require more counsel, a seasoned, registered financial adviser will be able to assist.’

Rubushe points out that the JSE offers various tools, educational resources and platforms to help individual investors make more informed decisions.

‘The JSE website provides beginner to advanced investment education. People are able to learn and practise investing and trading in a simulated environment through the Virtual Trading Game, freely available again through our website and via mobile, while the JSE Investment Challenge offers South Africa’s largest high financial literacy offering outside the education curriculum. High school and tertiary level students are taught to invest and trade, setting them up with a life-long wealth creation skill,’ she says.

‘There is also Stock Picks, a regular online offering through YouTube where investors obtain access to the stock selections of the leading local experts, and JSE Investor Avenue – our podcast – offering a wide variety of financial literacy topics. It’s important to note that these do not impart investment advice. The exchange also has in-person offerings, such as #SheInvests, which is tailored towards amplifying financial literacy for women.’

Overcomplicating strategies with speculative trading or chasing trends often leads to costly mistakes, she says. ‘By focusing on basics like assessing value, monitoring market conditions and maintaining a disciplined approach, investors can make informed decisions and weather market volatility.’

By Patrick Farrell
Image: iStock