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Investments in a black swan world – are they safe anywhere?

It is the second year of Covid-19. The entire world has felt the effects of the pandemic and is battling to find a new way of life with the virus still prominent and prevalent. In the investment space, markets have dipped and then recovered while some asset classes are down, but not yet making their way back up to pre-Covid levels.

With so much uncertainty, investors could be asking themselves: Is there even such a thing as a safe haven for my remaining investments? Should I be making changes to my long-term financial plan? Do the so-called experts know what they are doing?

“Black swan events are called black swan events exactly for that reason – nobody knew they were coming,” says Mickey Gambale, CEO of INN8, an independent investment platform solution inspired by South African wealth managers to change the way investments are done.

“When they occur, they are course speed bumps in the road and even though the experts might also not have known they were going to happen, it does not change the fact that they are still the best equipped to handle them,” he argues the case for individual investors to always find an adviser to partner with.

While it might feel like the volatility and uncertainty the world and its markets are currently facing is unprecedented, it has seen such shocks to the system before.

A graph produced by PWC in the middle of 2020 shows that the S&P 500 index experienced severe volatility in January last year, but that it was still below the levels of Black Monday on the 19th of October 1987 or the levels of the Great Depression.

The first biggest mistake that anyone can make in volatile market conditions, when it comes to financial plans or investments, are knee-jerk reactions,” says Gambale.  “When you invest, it is always long-term. If it is short-term, it is actually gambling. We know over the long-term how certain asset classes behave, what their long-term return profiles are and what their long-term risk profiles are.” 

But what if this time is different, and long-term growth will not triumph over the losses incurred? What if the long-term game will not deliver the growth results investors count on for wealth management?

Gambale does not think that this will ever be the case. He believes that global players and governments will put systems in place and execute regulatory decisions that will stimulate growth and economic development, because the economy has to grow and jobs have to be created.

The best course of action, therefore, is to stick with your long-term plan. Preferably one that has been developed with your needs and requirements taken into consideration and lives over the long-term – 20-plus years or more.

And then you need to spread the risk.

It is important to know, says Gambale, that there is no such thing as no risk.

“Even the example of putting your money under your mattress does not come with no risk,” he says. If you are not investing your money and just holding on to it, inflation will erode the value over time, effectively meaning you lose money by doing nothing.

“There is always risk. The moment you invest, you get a return. And that return is the reward for the risk that you take,” he says.

So, if you cannot get away without incurring any risk, you need to spread the risk over asset classes, geographies and investment types. Diversification remains key.

Investors who are weary of investing locally should have faith in the South African financial regulatory system, Gambale says.

“I believe South Africa has an extremely strong financial regulatory environment. Our banking systems are of the best globally and our financial service conduct authority really listens to the market participants – the clients and the providers. From that perspective we are really on a good wicket,” he says.

If you do want to take your money offshore, it has become increasingly simpler over time, especially if you partner with a reliable and trusted adviser, who uses a reliable and trusted platform. 

“In terms of regulations and trust in the local system, the same goes for when you move offshore,” says Gambale. “Not all investment platforms are equal and not all jurisdictions are equal. It is important to know and to ask your adviser why he or she has gone with a specific platform, domiciled in a specific jurisdiction,” he says.

INN8’s platform, domiciled offshore in Jersey, aims to further simplify the complexity of offshore investments for the adviser, ultimately to the benefit of the client.

The digital platform cuts out a lot of the cumbersome paperwork when onboarding clients, offers a guided fund range in collaboration with Morningstar, as well as a range of discretionary fund managers for adviser to use in constructing portfolios.

Gambale encourages investors to have an informed conversation with their advisers. To this end INN8 has written a white paper on offshore investments, with the goal of simplifying and demystifying it to empower end investors. It can be found here. Using this information to get a better understanding of their options, they can then co-create the right financial path – both locally and offshore. DM


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