• by Raul

As previously mentioned in the article What Type of Investor are You? Conservative, Moderate or Aggressive?  a conservative investor is an individual who seeks stability when it comes to investing and is more concerned with protecting their capital than increasing its real value. As a result they are normally willing to accept lower returns in exchange for capital preservation associated with conservative funds.

Conservative investment time frame

Typically when making fund selections based on time frames, conservative funds would fall into a 0 – 5 year (short term) investment time frame.

However, many conservative investors tend to base their fund selection on their risk profile  instead of time frame as they know their tolerance for risk will not allow for them to handle the market fluctuations associated with more aggressive funds or they simply cannot risk the possibility of losing their capital over any stage within their investment lifespan. They would therefore make use of conservative funds regardless of the time frame or goals for which they intend on investing.

Advantage of adopting a conservative investment approach

Stability – by investing conservatively an investor can be more certain that their investment will provide them with steady growth with minimal fluctuations which will provide the capital required for their investment goals .

Disadvantage of adopting a conservative investment approach

Possibility of lower returns – due to the fact that conservative funds are more heavily invested in cash and bonds the investor could potentially lose out on the growth that could have been achieved by more aggressive funds which have higher allocations in property and equity.

Returns based on time frames

The following estimated figures provide conservative investors with an indication of the type of returns that they can expect when investing in Direct Unit Trust Funds. For the purpose of these calculations an annual expected average inflation rate of 6% is assumed. The scenarios and calculations below are for illustrative purposes only and can vary due to market fluctuations.

Estimated returns after 5 years

R10 000 once off lump sum investment

Invested in a conservative fund yielding an average return of 7% per annum

Invested for a period of 5 years

Will provide an investor with R14 026 after the period, which in today’s terms at an inflation rate of 6% will be worth R10 481.

Estimated returns after 10 years

R10 000 once off lump sum investment

Invested in a conservative fund yielding an average return of 7% per annum

Invested for a period of 10 years

Will provide an investor with R19 672 after the period, which in today’s terms at an inflation rate of 6% will be worth R10 985.

Estimated returns after 15 years

R10 000 once off lump sum investment

Invested in a conservative fund yielding an average return of 7% per annum

Invested for a period of 15 years

Will provide an investor with R27 590 after the period, which in today’s terms at an inflation rate of 6% will be worth R11 512.

Not a conservative investor? Take our risk profile questionnaire  to figure out what type of investor you are!