We understand that even motivated savers, living on a tight budget and with a clear financial plan, are wondering if they can achieve a comfortable retirement in the current environment. But however disappointed and frustrated you may feel with the blows 2020 has dealt, it is not yet time to throw in the towel.
It has been this bad before
For those old enough to remember, circumstances now may seem as daunting as they did in the late 1980s. That decade was hallmarked by a state of emergency and brutal policing in the townships, a low-intensity civil war in KwaZulu-Natal, sanctions, government’s inability to pay its foreign debt on time and the enforcement of prescribed assets and strict capital controls. Yet we still managed to step back from the cliff edge. South Africa reinvented itself and we entered a long period of growing prosperity over the two decades that followed. GDP per capita increased by 2.3 times and the All Share Index grew by 16% p.a. between 1994 and 2011.
A lost decade then followed. While the JSE still managed a decent 13% annual return in the first five years of the 2010s, it has barely got to 5% per year since. Let’s face it – Since Nenegate at the end of 2015, every other year has brought disappointment for retirement savers in South Africa (see table below).
In 2016, it was the realisation that corruption had hollowed out the South African state’s capacity. 2017 was a better year, fueled by an 80% surge in the Naspers share price and a bout of Ramaphoria. But 2018 saw very weak market returns, partly due to the slow pace of reform locally and partly due to a global risk-off event as the US Fed aggressively hiked interest rates. Last year, things looked better again, and at the start of this year, people were talking about ‘twenty plenty’. Then the pandemic hit, upending the entire world. Now most people are feeling frustrated, anxious and often angry at the resulting destruction of South African livelihoods.
This is an important moment
Given the current mood, it’s quite easy to become despondent. In moments when it feels like everything is going wrong and there is no end to the bad news, it is very difficult to remain positive and committed to the long term. The best thing we can do, even in a time like this when we feel helpless, is to stay resilient and determined to see the crisis through. The biggest problem with giving up is that the negative prophecy of a hopeless future will become self-fulfilling.
For investors, the cost of losing hope can be even higher, given how markets work. Equity markets deliver returns in a lumpy sequence, with the timing of large gains often divorced from the economic environment of the day. So if you are not around, and not invested when the recoveries happen, you miss out on a significant component of the value created over time.
While the economic news is all bad at the moment, we’ve seen a strong recovery in portfolio values back to the levels before the start of the Covid-19 crisis in March, despite the fact that we remain deeply concerned about the prospects for the domestic economy.
To the understandably concerned client that reached out to us recently, and to the millions of South Africans who are carrying the weight of the world on their shoulders, we can say that we still have hope. There are always opportunities amid the threats.
Key actions that you can take as an investor
We appreciate that you first need an income before you can decide what to do with that income. But as far as possible, we encourage you to remain invested if you can and to review your current asset allocation to ensure you are appropriately diversified.
This applies especially to those of you who found safety – and decent returns – in cash and income funds over the last few years. With the South African Reserve Bank having cut interest rates from 6.5% to 3.5% this year, the expected return on cash or near-cash investments are much less attractive.
While longer-term investors could successfully ride out the storm in bank deposits and income funds historically, this strategy is less likely to work as well over the next decade, given elevated government debt levels and incredibly low interest rates. The risk of higher inflation over the medium to longer term is building. Investors who have de-risked their portfolios over the last five years, or who may have invested too conservatively to begin with, need to consider taking action to increase the level of risk in their portfolio to an appropriate level.
Your best defence in this market environment
To combat the current levels of anxiety amongst investors, we continue to believe that a disciplined commitment to long-term valuation-based investing remains the correct approach. We focus on this every day on behalf of our clients by building resilient, diversified portfolios with a long-term view. All you need to do, in choosing the right investment fund for you, is to decide how much exposure you would like to have to growth assets, which depends on your own risk appetite and the time you have to invest.
We also believe that real assets, with the ability to preserve your purchasing power over time, should form the cornerstone of your portfolio in this current environment.
Enter the multi-asset fund
An actively-managed multi-asset fund can give you access to a well-diversified selection of real assets that will provide inflation protection in the long term.
Apart from being able to invest in cash and bonds, multi-asset funds have the ability (depending on the specific fund’s mandate) to invest in:
- equities (domestic and international);
- listed property;
- physical gold and other precious metals;
- other offshore assets; and
- government and corporate bonds, including inflation-linked debt.
While we are currently all running a challenging economic marathon, we encourage South Africans not to be overcome with despair. For 27 years, we’ve managed funds which can weather the times, whatever they might be. And even as the landscape rapidly changes, by applying rigour and carefully analysing each investment opportunity, we aim to protect and grow your investments, now and into the future. With resilience, determination, and above all humanity, together we can move through this crisis. DM
To read more about investing with us visit coronation.com
The information contained in this article is not based on the individual financial needs of any specific investor. To find out more, speak to your financial adviser.
Coronation is an authorised financial services provider.