People in this business will sell you an investment without ever telling you what level of return they expect it to achieve. The amazing thing is that they succeed in doing so.

Unfortunately you tend of course, to be more interested in the future. You will then be shown an ‘illustrative value’ for your investment.

Funds Investing

This ‘illustrative value’ is not calculated on the rate of return that they expect the investment to achieve. It shows what would result if the investment performed at any of a couple of standard rates that have been specified and agreed upon by the Life Offices Association. This goes along the lines of ‘your investment will be worth R40 000 if it achieves a growth rate of 9% per annum over five years’.

Can you picture yourself shopping for a car? You ask the salesman what consumption you should expect. He replies that if the car manages 10 litres per 100 kilometres then for every litre you put in the tank you should be able to cover 10 kilometres. Why did you ask?

This nonsense is designed, I think, to prevent dishonest brokers from lying to you and raising your expectations to unrealistic levels. Incidentally, it also prevents you from suing the company if an investment does not perform. However, by showing you records of past performance the broker already implies that the future should bear some relationship to the past.

At the very least the broker should give you an indication of the return he expects on the investment and why he has that expectation. Investments are all about expectations.

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