How should I invest R1.2m for maximum capital growth?

You can split your capital between an all-equity portfolio offshore and SA equity and bonds.

I am male, 65, single and still working. No debt. Just sold my primary residence. I want to invest R1.2 million into equities for a five-year period. Any dividend yield will be reinvested. I’m looking for maximum capital growth, not dividends. Medium risk profile. I have just opened an EasyEquities account, which is empty and waiting to be stocked. Any suggestions?

This is an interesting question that should provoke some serious thought among advisors.

Let’s start by breaking your question down:

  • You are looking for maximum capital growth;
  • You state your investment term is five years; and
  • You state you have a medium risk profile.

When looking at your requirements above, it is worth pointing out that points 2 and 3 are actually in slight contradiction to point 1.

Evidence shows that over the long-term (more than 10 years), equities tend to outperform other asset classes materially. However, over a period of five years, this has not always held true. Furthermore, you state your preferred risk profile is moderate (medium). This indicates that you may not be completely comfortable with a 100% equity portfolio. Remember, while equities tend to be the best-performing asset class over the long term, it is also a volatile asset class with lots of bumps along the way.

The short answer to your question regarding maximum capital growth would be to invest in a 100% equity portfolio/fund that displays a slight bias towards the offshore (developed) market and to leave this money for at least 10 years.

However, you have stipulated that your time horizon does not match up with this and that you may be uncomfortable with the volatility encompassing an all-equity portfolio. This is completely fine and there are still a number of solutions out there that can meet your requirements.

It is important to ensure that you do not look at the R1.2 million as one bucket of money. You can indeed split this capital in order to give you the best chance of material growth while also ensuring you have a degree of stability in the portfolio.

A possible solution would be to invest say R600 000 into an all-equity portfolio offshore. The remaining R600 000 can then be split between SA equity and SA bonds.

SA bonds are delivering relatively attractive yields at the moment and also have the ability to smooth the overall volatility in the portfolio somewhat.

Looking at an overall asset allocation, something like the following may meet your requirements and result in decent growth:

The above asset allocation has a good balance between local and foreign equity as well as material SA bond exposure. This risk profile of a portfolio like this would be described as moderate to aggressive.

This solution is of course designed purely based on the information you provided. In order to compose a more definitive investment proposal, it is imperative that you provide more information on things like your tax profile, any other investments you may have, and potential ad hoc liquidity needs that may arise.

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