The Moderate Investor

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As previously mentioned in the article What Type of Investor are You? Conservative, Moderate or Aggressive? moderate investors are more concerned with relative yet stable growth in excess of those provided by conservative funds. They are willing to tolerate more fluctuations in exchange for more reasonable returns, but are still not comfortable enough with market risk to invest their funds aggressively.

Moderate investment time frame

Typically when making fund selections based on time frames moderate funds would fall into a 5 – 10 year (medium term) investment time frame. However many moderate investors tend to base their fund selection on their risk profile instead of time frame as they know they are comfortable enough with market fluctuations so as to invest their cash in funds that have more exposure to asset classes such as property and equity so as to allow for more growth.

Even though moderate investors are willing to have a portion of their funds invested in property and equity their investment will still maintain a fair amount of exposure to cash and bonds so as to provide stability and security during more turbulent times in the market.

Advantage of adopting a moderate investment approach

Reasonable returns – moderate funds can provide investors with higher returns than those offered by conservative funds whilst maintaining a certain level of stability due to the fact that moderate funds maintain higher allocations to less risky asset classes such as cash and bonds.

Disadvantage of adopting a moderate investment approach

Market fluctuations – due to the fact that moderate funds allocate a larger portion of the investors’ cash towards riskier assets such as property and equity the fund returns are more likely to fluctuate than those of conservative funds.

Returns based on time frames

The following estimated figures provide moderate investors with an indication of the type of returns that they can expect when investing in Direct Unit Trust Funds. For the purpose of these calculations an annual expected average inflation rate of 6% is assumed. The scenarios and calculations below are for illustrative purposes only and can vary due to market fluctuations.

Estimated returns after 5 years

R10 000 once off lump sum investment
Invested in a moderate fund yielding an average return of 10% per annum
Invested for a period of 5 years

Will provide an investor with R16 105 after the period, which in today’s terms at an inflation rate of 6% will be worth R12 035.

Estimated returns after 10 years

R10 000 once off lump sum investment
Invested in a moderate fund yielding an average return of 10% per annum
Invested for a period of 10 years

Will provide an investor with R25 937 after the period, which in todays terms at an inflation rate of 6% will be worth R14 483.

Estimated returns after 15 years

R10 000 once off lump sum investment
Invested in a moderate fund yielding an average return of 10% per annum
Invested for a period of 15 years

Will provide an investor with R41 772 after the period, which in todays terms at an inflation rate of 6% will be worth R17 430.

Not a moderate investor? Take our risk profile questionnaire to figure out what type of investor you are!

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Read more articles from Raul:

The Conservative Investor
The Aggressive Investor
What Type of Investor are You? Determine Your Risk Profile
What Type of Investor are You? Conservative, Moderate or Aggressive

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About Author

Raul Jorge is a CFP® professional at PSG. He specialises in estate, investment, retirement and risk planning. Prior to joining PSG, Raul completed his BSc (Honours) in Business Administration through the University of Wales and more recently completed his Postgraduate Diploma in Financial Planning through the University of Stellenbosch.