Balancing fixed and variable returns to achieve your investment goals

Fedgroup, a leading South African FSP with over 30 years of industry experience, believes investors should find a healthy balance between risk and reward in their investment portfolio.

To achieve this, Fedgroup suggests a diversified approach that incorporates fixed and variable returns, ensuring your portfolio can weather market fluctuations while offering the potential for long-term growth.

• Contact Fedgroup to learn about its fixed and variable rate investments.

This balancing allows an investor’s portfolio to generate good growth over time while providing stability along the way.

To understand the difference between variable and fixed returns and explain why a balance of both is important we unpack the most important elements of each, below.

Variable returns

A variable return investment is any investment where your annual returns are not set in stone.

For example: If you buy shares in a company at the start of the year, you don’t know how much your investment will be worth at the end of the year.

Variable return investments also vary greatly in terms of volatility. Assets that carry higher risk, like cryptocurrency or shares, can increase or decrease significantly within the space of a few days, whereas lower-risk investments like those linked to the prime lending rate are far less volatile.

In light of this, Fedgroup offers a variable rate Tax-Free Savings Account, which allows you to invest up to R36,000 per year towards a total lifetime contribution of R500,000, with any growth you earn is tax-free. While it offers a variable rate, it has achieved returns exceeding 11% in the past year and has never delivered less than 10% since the product was launched.

This offers flexibility for choosing your investment strategy, allowing for potential higher returns.

Fixed returns

Fixed-return investments offer a specific return within a specified time period.

For example: The Fedgroup Secured Investment product offers a competitive fixed nominal rate of 9.9% per annum over a five-year term, complete with capital security and zero investment fees.

This provides a reliable source of returns while protecting your initial investment. It also serves as a safeguard to some of your capital.

You can then take on risk in other areas of your portfolio to capitalise on market opportunities, safe in the knowledge that even if these risks do not pay off, you have your fixed return investment to fall back on.

Combining variable and fixed returns

The golden rule of a successful investing strategy is diversification and this extends to fixed and variable returns.

“Investors should have a portion of their portfolio where they know exactly how it will perform,” said Michael Field, General Manager of Investments at Fedgroup.

“Then, at the next layer, they can take on moderate risk through relatively safe variable-return investments, before lastly taking on some more significant risk.”

This means allocating a portion to fixed-rate investments that offer predictable growth, forming the foundation of your investment strategy. Field adds that determining the ratio of each layer comes down to the specific needs of each investor.

A young South African investing in their retirement fund can take on more risk, as short-term fluctuations are not as problematic, and are outweighed by the investment’s long-term growth.

In contrast, a shorter-term investment like a fund that enables you to save for school fees, a deposit for a home, or a product where you draw income should take on less risk, as short-term fluctuations will have a greater impact on achieving your goals.

Depending on individual requirements, you can add variable return investments to your portfolio. These carry slightly more risk but hold the potential for significant long-term growth.

Fedgroup offers various options for variable returns, including Specialist Endowment Portfolios, which allow you to invest in alternative assets through highly regulated structures.

This way, you can grow your wealth while contributing to a sustainable future.

These portfolios provide exposure to a wider range of asset classes beyond traditional stocks and bonds. This diversification can potentially enhance returns and reduce overall portfolio risk.

Work with a financial advisor

Field recommends that all investors work with a financial advisor, as these professionals have the knowledge required to help you find the perfect balance for your portfolio based on your objectives, risk appetite, and tolerance.

Alongside their extensive expertise, they are a great voice of reason and can identify where you may have personal biases that can negatively impact your investment strategy.

Contact Fedgroup to learn about its fixed and variable rate investments.