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Avoiding the sales pitch in financial services is sadly a skill you need to develop.

I recently consulted with someone who had been shown a table of fund returns from a product house.

The return number being dangled as the proverbial carrot was an impressive 50% gain in the last year. The message being conveyed was ” This is what we can do for you if you move to our fund.”

Who wouldn’t be interested in a 50% return in one year let’s be honest. I often speak in our workshops about how the world of money management is made up of half truths. This is a great opportunity to illustrate the point. 

How the story is told:

The graph above shows how the unit price of  the Sygnia Skeleton Balanced 70 Fund* changed over a period of time. 

The big dip down is March – April 2020, when the pandemic resulted in a global shutdown. If this was your only holding, your portfolio would lose a quarter of its value in a matter of weeks. 

The recovery from that low to the new peak recently, represents a gain of 44%. Conveniently close to the carrot return being dangled in my example above. 

What the reality is:

However, if you held the fund before the sell-off and continued to hold it today, the actual return you have experienced is closer to 9%. 

So while the return being used to try and make a sale above, was an actual return, it is very clearly also only a half truth at best. This is the marketing or product sales pitch.

But remember the gains you need to make in order to get back to your original position following a loss looks like this: 

The  Sygnia fund above would have returned 33% from its low to get back to its pre-covid 19 sell off level. (Which you remember was a 25% decline). 

Similarly a 50% loss requires a 100% gain just to get you back to where you were before hand. 

It may be analysis worth doing (another time) but I’d bet some of the biggest losers last year, are now showing the best gains in the fund peergroup simply as a result of the above. It does not mean their long-term owners are any better off however. 

How to combat the sales pitch:

You should always steer clear of short-termism or placing too big an emphasis on 12 month numbers. A better indication would be to  increase the measurement to 3-years at least, 5-years or longer if possible. This is really what is going to help you generate wealth, not picking the highest return in any given year. 

* The Sygnia Skeleton Balanced 70 Fund is a balanced fund in the ASISA  SA Multi-asset High Equity sector. Yes I know that just sounds like gibberish. It just means it represents the type of fund that 95% of South Africans hold in their retirement portfolios.


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