By Geoff Noble

It’s that time of year again. Turn on any financial news channel or flip through investment magazines and you’ll be bombarded with expert predictions about what’s going to happen in the markets over the next 12 months.

“Tech stocks will skyrocket!”

“Interest rates are going to drop!”

“This is the year for emerging markets!”

We’ve all read this type of bold claim, delivered with such confidence that they almost sound like guaranteed promises.

But here’s the truth that most financial experts don’t want to admit: they’re essentially playing a sophisticated guessing game. No one – and I mean no one – has a crystal ball that can accurately predict market movements. In fact, many investment firms end up publishing year-end articles about all the things they completely missed, which is just a fancy way of saying: “Whoops, our predictions were wrong… again.”

Don’t get me wrong, I’m not criticising experts or suggesting they’re incompetent. They are often brilliant, mathematically-minded professionals who genuinely want to help investors. The problem is that the financial world is incredibly complex, influenced by countless unpredictable factors – from geopolitical tensions and economic policy to natural disasters and unexpected technological breakthroughs.

So I encourage you not to get caught up in the annual prediction circus and distracted by interest rates and fuel prices, not to mention portfolio managers making a song and dance about their brilliant investment decisions to buy or sell stock and that specific stock only makes up a tiny part of your total portfolio. Instead, let’s look at a smarter approach to investing, one that doesn’t rely on fortune-telling but on understanding your personal financial journey.

Investing 101: It’s Not Rocket Science (Though Sometimes It Feels Like It)

At its core, investing isn’t some mystical art – it’s really just about two simple choices: you can either own something or lend money to someone. Think of it like a financial rugby match where you’ve got an offensive/attacking strategy (ownership) and a defensive strategy (lending).

The Ownership Play: Your Investment Offense

Ownership assets, which are typically represented by equities,  are basically your ticket to potentially riding a company’s success. When you buy equities, you’re not just acquiring a piece of paper, but a claim on a company’s future earnings. These assets offer potential for growth but come with inherent volatility and uncertainty. Some days you’re the hero, other days you’re wondering why you didn’t just keep your money in a savings account.

The Lending Strategy: Your Financial Defence

Lending assets, such as bonds and fixed-income securities, represent your “defence.” These are essentially contractual agreements where you lend money in exchange for predetermined, typically more stable returns. Government bonds, for instance, are often considered the closest thing to a “safe” investment, providing a predictable income stream.

The Real Deal: Understanding Your Personal Risk

Traditional investment wisdom suggests that the primary goal is maximising returns. However, a more sophisticated approach places risk at the centre of investment decision-making and I believe there are three dimensions to investment risk.

1. Risk You Need to Take

Understanding the returns you need to achieve your financial goals is crucial. For instance, if you require R10 000 per month in retirement, this specific need will significantly influence your asset allocation strategy as it will shape your entire investment strategy.

2. Risk You Can Afford

This relates to your financial resources and ability to absorb potential losses. Your total available capital determines the level of risk you can realistically undertake. Someone with substantial savings might be able to weather more significant market fluctuations compared to someone living month to month.

3. Risk You Can Mentally Handle

The psychological component of investing is often overlooked is extremely important. Can you maintain composure during market downturns? Will market volatility prompt you to make emotional, potentially detrimental decisions? Your emotional resilience is as important as your financial resilience.

The Probability Playground

I like to represent investment outcomes as a statistical histogram. Think of this as a triangle in which the central region represents the most likely scenario, with potential outcomes gradually tapering towards the extremes. As you increase your allocation to growth assets, these potential outcome ranges become broader and less predictable (represented by thebottom corners of the triangle).

This doesn’t mean avoiding growth assets but understanding that each asset mix offers a unique risk-return profile. The goal is finding a sweet spot that balances potential returns with your personal risk comfort level.

Why is all of the above important? Well, you need to take it all into account when you start building your Personal Investment Strategy. Here are my top recommendations to make this as easy as possible:

• Find Your Financial Wingman (or Wingwoman)

A good financial advisor isn’t a fortune teller. They’re more like a personal trainer for your money – helping you understand your goals, assess your strengths and weaknesses, and create a plan that actually makes sense for your life.

Financial institutions often mystify investing with complex terminology, sophisticated-sounding products and seemingly expert market predictions. Your advisor will help you navigate this and sort out all the noise.

• The Annual Check-Up

Treat your investments like your health. An annual review isn’t just recommended – it’s essential. Life changes, markets shift and your strategy needs to keep up.

So to summarise, successful investing isn’t about outsmarting the market or finding a magical investment that guarantees high returns. It’s about:

1. Understanding your personal financial landscape

2. Focussing on YOUR goals (not some market prediction)

3. Understanding your personal risk tolerance

4. Diversifying, but not overcomplicating

5. Staying flexible and patient (focussing on long-term objectives rather than short-term fluctuations)

The Real Secret

Successful investing isn’t about being the smartest person in the room. It’s about being honest with yourself, understanding your financial goals and creating a strategy that lets you sleep at night.

Remember, in the world of investing, the only true prediction is that nothing is predictable. Your best weapon? A clear head, a solid plan and the ability to ignore the noise.

So the next time someone tries to sell you on the “can’t-miss investment opportunity of the year,” take a deep breath and smile. You know better.

Footnote: A large part of this article has been inspired by articles written by Howard Marks. If you want to read his commentary for yourself, please visit:https://www.oaktreecapital.com/insights