Understanding investments: Phasing in 101

When it comes to investing, is it better to put all your eggs in one basket?

Phasing in an investment means breaking the intended investment that we would like to make into equal parts and then investing these smaller parts over a defined period of time on a monthly basis, says Jason Garner, management consultant at Acsis. “This averaging effectively reduces the risk of losing a significant portion of the lump sum in one go. The drawback of this approach of reducing losses is that we also reduce the possibility of enjoying growth on the total investment amount.”

The most conducive investments for phasing in are those investments that carry significant volatility. Typically these investments include local and offshore shares, listed local and offshore property investments, investment in bonds both locally and offshore, investing in different currencies or investments that combine all these different kinds of shares. “Any investment that can lose significant value in the short term should be a consideration for a phased-in approach,” says Garner.

Implementing your financial plan

Should you make use of a qualified financial planner to assist you in planning and implementing your financial plan and financial planning strategy, your advisor will be able to assist you in putting either a lump sum or phased-in approach to your investment. Your advisor should discuss these two approaches with you and can guide you through the decision-making process.

“However, for individuals who are making these decisions on their own, without the help of an advisor, you will need to make the enquiries as to whether the investment is able to facilitate a phased-in approach or not. You can also manually make the investments using a phased-in approach, by making manual payments of the desired investment amount, over the desired phased-in period by making equal contributions to the investment each month,” says Garner.

Garner recommends considering the following before making any investment:

  • Be clear about what you need in order to live the way you would like to, both now and in the future.
  • Understand what return is needed in order to achieve this desired lifestyle.
  • Do you need to invest in shares, cash, bonds, listed property, local/offshore or a combination of these different investments put together to achieve your desired return?
  • Are you happy with the risk that you are taking during the duration of the investment and would you be able to sleep comfortably should you lose capital within the expected limits of the risk you are taking? If not, what else can you do or invest in, in order to reduce this risk and still achieve your desired objectives?
  • If it sounds too good to be true, it probably is.