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Momentum Financial Planning approaches investment and risk from various strategic perspectives

Momentum  |  21 July 2014

Investments, Media release

During the recent Momentum DNA of financial wellness partnership forums that kicked-off on 21 July 2014 in Polokwane, Momentum Financial Planning was profiled extensively on the basis of their unique approach to investment and risk.

Traditional asset management strategies are created for broad investment objectives, treating investors as homogenous groups in a ‘one-size-fits-all’ manner. Investors, on the other hand, try to match their individual needs to the range of funds available in the market. This creates a potential disconnect between proper financial planning and traditional asset management strategies.

To address this gap, a more comprehensive investment strategy would be to combine the traditional asset management approach with a detailed cash flow analysis and a time-based, asset-liability model, in order to create a unique wealth management solution within a comprehensive financial plan for each investor.

This is the foundation of Momentum Financial Planning’s wealth management solution. The solution effectively combines traditional asset management strategies with an investor’s specific investment objectives, needs and risk profile, as well as the investment term when funds will be required.

It is important to note that investments are not made in perpetuity and there comes a time when investors require drawdowns in the form of a disinvestment or withdrawal, which may be required as income, capital or both.

Momentum's wealth management solution provides a unique asset allocation strategy and time-based risk management model. This is in order to best allocate an investment across the various asset classes, while at the same time applying a dynamic model that is cognisant of when drawdowns or disinvestments will be required in the future.

Appropriate amounts within the investor’s portfolio will be allocated to different strategies in order to achieve these future events, i.e. when the investment will be required. This takes place in an active framework that is not limited to a single future need, but can incorporate several future events within the time-based risk management model, e.g. saving for a child's education, buying a car or investing for retirement.

Various strategies

A single asset allocation strategy is provided, which represents a collated summary of all underlying strategies modelled for future cash flow requirements, i.e. withdrawals for income or capital purposes.

A specific asset allocation strategy is constructed for each future withdrawal or disinvestment and the corresponding asset allocation adapts robustly as the future event approaches. This means that exposure will be allocated to growth assets when ample time is available to invest. Exposure to more conservative or cautious assets will dominate an allocation as the future withdrawal or disinvestment date (maturity date) nears, i.e. as the investment term gets shorter.

The time-based risk management model is comprised of five basic steps:

  • Capture: The initial or available investment amount is captured along with the investment term and required future events or withdrawals, i.e. when the investment will be used.
  • Calculate: The model calculates the optimal time-based risk management strategy using expected returns of each asset class.
  • Adjust: Expected shortfalls or excesses are highlighted and can be altered in order to achieve the desired outcome.
  • Fund selection: Appropriate funds are selected in line with the time-based risk management strategy constructed in the model.
  • Review: The investment strategy and wealth management solution should be reviewed regularly in order to ensure that the plan is on track and that the corresponding asset allocation is aligned on each review date.

Momentum Financial Planning has designed a range of purpose-built, actively managed fund solutions to accurately replicate the time-based risk management strategy in the wealth management solution. The fund range targets specific return outcomes while ensuring an optimal blend of managers, portfolios and strategies in a well-defined combination of asset classes.

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