The performance of markets in the traditional assets, equities-bonds-cash and all the variations has been a roller coaster ride of turmoil and returns. Investors are exhausted, perplexed, and often poorer
Investors and Retirees have been frustrated and denied turning their dreams into reality!
Planning the investment goal?
Is it to build wealth or receive an income?
Save, build, accumulate wealth to meet a future goal …
○ funding higher education for kids.
○ saving for a fabulous holiday.
○ money for that car.
○ that offshore PLAN B home.
○ that retirement fund …
When is the cash required?
Once the goal is understood we set deadlines, a timeline
○ Within 2 years I want to travel to Antarctica
○ I want to gift my son university education in 5 years
○ We want to retire in 8 years
How Funded?
Building capital can be funded by monthly savings or investment by lump sums.
Structuring a passive income …
○ for retirement
○ a second income for the “nicer things”
○ getting off the hamster roller coaster
“giving me choices on my journey to financial freedom … an income stream for life where money works not me”
What is the ideal term?
The term is decided by a number of factors
○ what is my investment goal I am working towards.
○ what deadline, timeline have I decided on.
The goal deadline for Passive Income or Accumulating Wealth is also hugely dependent, and affected by the return on investments, in particular the huge effect of negative returns in any investment strategy.
Return?
Determines possibility of meeting the goal and deadline
If an investment is worth currently $10 000 and there is market volatility, let’s say down 20% in a year, then the investment balance is $8 000.
To get back to $10 000 requires roughly two years of positive +15%; +15%.
Quality Group subscribes to three key investment principles
1. Return must exceed inflation and bank deposit rates (In all currencies)
2. Return must exceed devaluation of the country currency. For example, the South African ZAR has devalued by over 6% pa on average against the US Dollar over the last 40 years. Unfortunately, political, and economic circumstances are increasing the rate of devaluation! In summary to retain purchasing power and quality of life, devaluation can be sidestepped by investing in hard currencies.
3. Don’t lose money. Its hard to catch up!
Rule of 72
Ensure returns exceed bank interest rates and inflation
Quality Group subscribes to the Albert Einstein and Warren Buffet rules for managing money. Invested money must be effective and must not lose. Look at the years it takes to double wealth
@7% : 10,28 years @12% : 6.0 years.
A huge difference over 10 -15 – 30 years.
@4% it takes 18 years to double wealth.
Don’t lose Money
Sidestep negative returns. 
And consistency is key i.e. don’t lose!
Focus on steady positive returns.
It is an uphill fight just to get back to where you started.
Where to invest?
Subscribing to the “3 Quality” investment principles” what do we recommend?
The traditional solution tends to be equities or equities and bonds or equities, bonds, and money markets (cash). Direct or via funds or combinations.
Markets tend to lead, follow, or equate the USA markets which is the largest economy in the world. From 1928, nigh on 100 years, returns on average are $9,90pa. Examining period of 10 years to 35 years, Similar results. But even over 25 years compared to 10 years, (long term) the return is very different and demonstrates volatility.
First Rule. To invest in markets, term must be greater than 10 years to ensure some predictability of return. As the time approaches to structure passive income, switch your investment strategy to sidestep volatility. Do it when markets are up.
Second rule. Here timing is everything! To ensure predictability and success in switching to passive income, do it at least 10 years before passive income is required.
USA Market Returns-Top 500 USA Companies
Stocks-Bonds-Inflation
As illustrated by Bloomberg above. $100 000 invested from 1982 to 2022 is worth $6,7 million (green line). Handsome indeed. Bonds (blue line) finished at $1,295 million but flatlined in the last decade. But all these returns are long-term.
Third Rule. Avoid Turmoil! The grey columns illustrate market and world events and the effect on returns and the turmoil. Yes, markets perform, but over the long term, but the rollercoaster of markets, is emotionally stressful and makes it exceptionally difficult to plan financial freedom when world events influence returns with increasing volatility.
Private equity & Private lending (have proved the answer)
The investment landscape morphed in 2008 when central banks introduced lending limitations on the traditional banks and lending to small and mid-size businesses literally “dried up overnight.”
These $3m to $150m revenue pa businesses/corporates turned to the private market and PWC (Price Waterhouse Cooper) estimates private equity & private lending will reach $21 trillion by 2025.
A hefty 15% of global assets under management!
The good NEWS
Quality Group has curated fixed income investments and are able to share unique investments that do what they are supposed to do.
○ steady, consistent returns
○ income or growth options
○ returns are above average
○ exceed inflation
○ better than bank interest rates
○ disconnected from markets
○ with capital protection
hugely appreciated in this uncertain world
In Summary
Alternative assets, Private equity and Private Lending are consistent, steady and terms can be short, as little as two years without the turmoil of roller-coaster markets with equivalent returns to long term markets.