Share and property prices are like relationships – up one minute, down the next. Shareholders spook easily, so a bit of bad news can have everyone selling and nobody buying. When there’s too much of something in the market, the price goes down until buyers become interested again. The market rewards long-term investors for holding shares and property as a reward for the see-saw associated with investing, just like long-term relationships reward you for sticking around through all the fights. If the short-term movements of shares are the fights, the overall performance is the relationship.
As you come closer to cashing in your investments, short-term price movements are more likely to lose you money because you can’t wait for things to settle down again. If news about a share you held broke on the day you were planning to sell it, you would either have to sell your share at a low price or wait for the price to go up before selling. Selling a share at a lower price than you paid for it would mean you made a loss on your investment.
You can only get around this by making sure you hold assets that won’t see-saw as you get closer to living off your investments. For example, if you know you’ll need to start selling some of you investments next year because you won’t be earning an income, you need to make sure you have some cash. Your cash savings won’t fluctuate with news events or market movement. Similarly, when you invest in bonds, the exact amount you invested gets paid out to you at the end of your investment term. Having a mix of risky, high-earning assets and safe low-earning assets is called “diversification”.
Diversification can be tricky. How do you know how much of your investment should be in which asset class? How long before you need the money should you start selling risky assets and buying safe ones?
The MAPPS Protect ETF (MAPPSP) tries to solve this problem on your behalf. The ETF is not only invested in local shares, but also in cash and bonds. It’s specifically designed for investors with a shorter time horizon. It may also be a good option for skittish first-time investors who want to get into the market slowly.
The MAPPSP comes pre-diversified, with an eye on stability. 11.3% of the ETF is pure cash. A 35.32% allocation to inflation-linked government bonds ensures your money can at least keep up its buying power. 15.3% is invested in nominal government bonds and 38.06% in equity. Since more than half the ETF is diversified away from equities, at least half of your investment is likely to hold its value in the short term.
The cash and inflation-linked bonds ensure that, at the very least, you end with the money you started with. The nominal government bonds offer the opportunity to make some money if the interest rate goes down, while the sizeable equity allocation gives the ETF enough teeth to make money when the rest of the market makes money. The equity part of the ETF is invested in JSE-listed top 40 companies.
The dividends and bond interest payments received are automatically reinvested in the ETF on your behalf, giving even more of your money a chance to grow.
|ETF name||MAPPS™ Protect ETF|
|ETF JSE code||MAPPSP|
|Issue date||25 May 2011|
|Effective annual cost||0.45%|
|ETF benchmark||MAPPS Protect Index|
|Tax-free savings account||Investment allowed|
|ETF holdings||Download the holdings here|
|Performance||1 year +5.1%
3 year +12.4%
5 year +25.6%
|Dividends*||3.8% – reinvested|
|What we like||This ETF offers stability and excitement in one beautiful package|
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