When it comes to investments, it's important to stay focused on the bigger picture - even though the effect of recent political events in South Africa may have you itching to move your investments out of the market and into cash.
The instinct to do this arises from the fact that cash investments are readily available for use and are free of most investment risk. The low risk of a bank failing is essentially the only concern as they are investments on short-term, variable-rate deposit with reputable banks.
However, in an article published at the start of April 2017 in Personal Finance, Leigh Kohler, the head of research at Glacier by Sanlam, explained that it’s important at times like these to remember that even though a cash investment may seem like a comparably safe one, the returns don’t often beat inflation. Only once between 2001 and 2016 did cash investments outperform local equities and bonds.
Furthermore, if you had been invested only in South African equities over this period, you would have received an average return of 17.12%, compared to just 7.96% if you had only invested in local cash investments.
You are also taking two market-timing risks if you wish to move your investments into cash then back again once things have calmed down, and research shows that getting the timing wrong can be a huge blow to your portfolio.
No one knows exactly what the future holds for the markets, but since former finance minister Nhlanhla Nene was fired in 2015, there has been heightened volatility and you can be sure to count on more. Riding this volatility and being invested for the long-term in listed property and equity is how Kohler believes you will earn inflation-beating returns.
What should you do in lieu of making an emotional decision?
- Invest in a combination of asset classes in line with your needs, time horizon, and risk tolerance;
- Invest in a suitable multi-asset fund;
- Ensure you have sufficient exposure to offshore assets;
- Understand and believe in your long-term investment strategy, then stick to it.
If you would like to chat in person about this, don’t hesitate to arrange a meeting to review your portfolio so that we can revise and reinforce the stability, flexibility and durability of your financial plan.