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Look beyond one shining decade for US equities before you change everything

As so many South Africans lament the rules limiting offshore exposure in their retirement savings, the 10X Investments Annual Investment Review for 2019 provides an opportunity for reflection on two strikingly different sets of results: the decade that was, 2010-2019, and the decade before that, 2000-2009.

As the Investment Review shows, the US equity market was certainly the place to be over the last 10 years. 

R100 invested at the start of the decade in the US, as measured by the S&P 500, would have grown to R677. As the US makes up close to 60% of the Developed Market index, this also performed strongly. R100 invested in the MSCI World Index would have grown to R496, despite the rest of the world delivering softer returns over the decade. The Rest of the World Ex-US would have grown R100 to R323. (All before fees.)

Emerging markets were the relative laggard in this decade. R100 would have grown to R282 in emerging markets, which is comparable to South Africa’s R278.

Given the strong performance over the past decade, it is tempting to believe that US outperformance will continue indefinitely and that your best bet for a comfortable future is to invest all your eggs in this basket. 

However, if we rewind 10 years, and conduct the same exercise, we can see that things can change dramatically from one decade to the next. 

R100 invested at the start of the year 2000 in US equities would have grown to only R109 after 10 years. 

In this decade, it was the rest of the world – and specifically emerging markets – that dominated global equity returns. R100 invested in emerging markets would have grown to R313 in this decade. That R100 invested in South Africa would have grown to R447.

However, hardly anyone remembers this today. It is human nature to focus on the recent past, even if this does not tell the full story.

At 10X we do not make market predictions, as this would go against the very essence of what we stand for. Instead, we focus on ensuring that retirement fund members have a well-diversified portfolio that will serve them well over the long term, regardless of the flavour of that particular month, year or decade. 

Numerous studies have shown that consistency is the key to long-term investing. The most tried and tested formula for consistent performance is not to chase trends (cryptocurrency, offshore, commodities etc), but instead to have a balanced multi-asset portfolio that covers all sectors, asset classes and geographies. 

No one knows what the next decade will hold, or what trends we will look back on in 2030. What we do know is that making a big bet on the wrong call is a sure-fire way to undo all the good done in years of saving and growth.

Betting on the future, whether based on the past decade or the decade before that, will only ever be that: a bet. It will probably make for a white-knuckle ride too. A better choice for your long-term savings would be to filter out the noise, stick to your long-term investing plan, keep your eyes focused on the future and enjoy the ride.  BM

This article was written by Mica Townsend, Business Development Manager at 10X Investments and a CFA Charterholder


A short video featuring 10X CEO Steven Nathan: Diversification, the one free lunch in investing


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