INDIVIDUALS expect financial advisers, brokers and investment managers to be able to predict what is going to happen in the market in the short term.

There were few who could have anticipated 15 months ago that the market would be up 50percent and that the rand would have recovered to where it is today.

Investors have to approach investing in a very different way. To achieve this, one needs to:

l Define ones needs;

l Design better solutions to meet these needs;

l Set realistic expectations of investments; and

l Work hard at it to meet ones expectations.

Guidelines to help you to achieve these objectives.

Define your financial needs according to the time horizon as follows:

Liquid Needs:

(I) In an emergency;

(II) For periods of up to one year;

(III) Needs that are unanticipated.

Medium term needs:

(I) Of between one to three years;

(II) Cash that you need, but for which you cannot commit to a date.

Long-term needs:

(I) Longer than five years;

(II) For your retirement, as long as it is at least five years away;

(III) Money for which you have no specific need.

It is important to realise the difference between a long-term investment and onewhere you are speculating.

The concept of the greater the risk the greater the return, is nonsense. Often where you take great risk, you end up losing all the money you invested, so know what you are doing.

Choose investments to meet your needs.

l Cash or money markets are suitable only for short-term liquidity. They are not a good solution for the medium or long term because they usually provide returns not much in excess of the rate of inflation. This is particularly relevant when you look at the after tax return. A gross return of 7percent at a 4 percent tax rate will give you 4,2percent after tax.

l Bond markets provide a solution to medium term investments because they contain a promise to ultimately repay capital as well as provide fixed income stream.

Currently, returns have reduced as interest rates have fallen.

l Stock markets rise over long periods of time, as companies are continuously innovating, increasing efficiency, developing, building, acquiring. In other words if you look to the long term, 10 years and longer, over the last 70 years on a rolling 10-year period, equities have out-performed any other asset class.

l Any investment involving derivatives, such as futures and options or currency forwards are inherently speculative and the implications of investing in them should be clearly understood.

Monitor needs viz-a-viz the investment. Performances of each sub-portfolio should always be measured against a well-defined benchmark, ie liquid assets against a cash benchmark and long-term assets against an equity index.

Change the investment when your needs change.

When meeting your financial planner, your needs should be clearly defined and your portfolio managed in accordance with those needs.

Guidelines for performance behaviour can be set and with a fair measure of confidence will not be exceeded.

These guidelines set correct expectations and make life easier for you and your adviser.

lThe writer is a financial adviser of Bryan Hirsch Colley and Associates. Email bryanh@bhca.co.za or phone 011-880-4888.