How holistic financial planning can enhance your share portfolio

By: Grant Meintjes, Head of Securities, PSG Wealth

You may have started out with a small amount of money which seems unimportant to include in your plan, or perhaps it is one area of your financial plan you want to retain control over. Perhaps you are motivated by those weekend conversations around the braai, and simply want to be able to take part. Whatever the reason, investors may not apply the same level of rigour to a share portfolio as they do to the rest of their financial portfolio. Taking a holistic financial planning view, however, can help you maximise your share portfolio in the long run, as it helps to cultivate a more considered and disciplined approach.

A share portfolio needs an investment strategy too

Just like any other part of your portfolio, your share portfolio needs a clear objective and strategy. It is key to stick to your investment objectives and not to second-guess yourself or your investment adviser.

Below are three resolutions to follow when it comes to managing your share portfolio – and reaping the benefits in the long-term.

Holistic planning encourages you to view your shares objectively

Equities have proven to be the best asset class to be exposed to over time. Share portfolios therefore have enormous potential to enhance the returns of your overall financial portfolio, provided you take certain factors into account.

One consideration is that since the returns on shares are not guaranteed, selecting the correct shares is of primary importance. Another is to ensure you avoid the common mistake of getting emotionally attached to some of the shares in your investment portfolio. A financial planner can act as a sounding board and help you take a more objective view of your holdings.

It reminds you of the importance of the correct time horizon

We often find that with shorter-term investments, investors tend to take on riskier shares as the yield potential is more attractive. This approach may lead to disappointment, since the probability of loss is typically higher in the short-term. Make sure that when you invest in a share portfolio, you define your investment horizon correctly, and that the risk/return trade-off you identify is based on facts rather than on hopes and expectations.

Complementing a share portfolio with other products can lower risk

The danger of viewing your share portfolio in isolation is that you may become overwhelmed by volatility or periods of poor performance. While share portfolios can be higher risk, they also tend to have higher returns over a longer-term investment horizon. For this reason, in a holistic plan they should be complemented with lower-risk vehicles. Choose products that suit your risk appetite and your investment horizon, as not all investments may be equally suited to your purpose – especially, for example, when you are saving for retirement. When you view your shareholdings as part of your entire investment portfolio, you are less likely to be discouraged by short-term volatility and respond emotionally.

Holistic financial planning is not about putting you in a box and limiting your choices. Rather, it is about ensuring that every part of your portfolio contributes to the success of your overall financial plan – including your share portfolio.