I call it the ‘Cost of Consequence’. If I do this and it goes wrong, how bad is the consequence? If I ride my motorbike up a very steep incline trying to keep up with the youngsters, how bad could a fall be? Actually, usually not too. This because you’re probably hardly moving forward at the time of falling over!
There are certain rapids in certain rivers around the country that cause paddlers to talk in nervous tones about how they are going to shoot them. There is one rapid on the uMzimkhulu river where a swim has always resulted in some or other cost for me, from a broken paddle to stitches in my leg. But there are some rapids where we know a swim will just be a bit of getting wet and off we go again, the only real damage that of your mates laughing at you.
The cost of consequence in the investment world, is actually low if you stick to some basic things:
• Have a good percentage of your wealth in listed investments (shares / unit trust funds) – liquid, easily traded, well regulated.
• Have a fair percentage of this offshore – spreading the economies that affect you.
• Invest in more than one asset class.
• Don’t take advice from a fund manager, take only information.
• Remember your residential property is not an asset.
• Make well considered decisions at inception of an investment and persist with that, not chopping and changing.
• Don’t arrange your money based primarily on tax reasons, like leaving enough in cash just to get the maximum interest income exemptions. The cost here is the loss of real growth of your money. Cash does not grow. R1 is always R1.
Just some thoughts….