Don’t forget to breathe.

Successful long-term investors such as Warren Buffett have often said that when everyone predicts the end of the world as we know it, and when profitable companies are all 20%, 30% and even 50% down from their highs, then it is time to start buying shares again.

At JWR we see this playing out once again. Talk to people and you will encounter a thousand reasons why this is only the start of another financial meltdown. You will hear about the sinking South African ship and the devastation American interest rate hikes will cause to global debt-ridden institutions. You will hear about collapsing world trade and the black hole caused by Chinese shadow banking.

And then you look at your own portfolio performance year to date and you see that they are right, this is the end. SA equity is down 12%, Germany is down 11%, China is down 20% and even the States is sitting at +1%.

At JWR we start the creation of a portfolio by matching expenses with asset classes. This is called Strategic Asset Allocation (SAA) and the aim is to ensure that you have enough money in low-volatility, low-risk assets like cash for short-term cash flow needs and you have enough money in longer-term assets like equities to beat inflation and thus protect the purchasing power of your portfolio over the longer term.

We prefer to keep the money you will need over the next 3 to 4 years in cash. We know markets can stay depressed for longer than 3 years, so we invest a portion of your money to cover another 6 to 7 years into balanced funds. Only the money that you will need after 10 years, do we invest in equities. There are times when equity markets can stay negative for a very long time but you usually get periods during those depressed years when you have a chance to sell balanced or even equity funds to top up your cash requirement.

The main aim of any investment portfolio should be to beat inflation over time. So, when we look at the annual performance of the broad asset classes over a 7- and 10-year period as at the end of October 2018, we see the following:

7 years 10 years
SA general equity funds 8.64% 10.91%
SA balanced funds 8.81% 9.86%
SA money market funds 6.45% 6.76%
Global equity funds in rand 16.21% 12.52%
SA inflation 5.43% 5.30%

Thus, if you have been an investor for at least 7 years, you should still be okay if you followed the SAA guidelines of investing. If you diversified some of you money offshore, you would have seen a healthy growth due to the weakening rand. And if you are a new investor, believe Warren Buffett and other star investors: when things seem hopeless, start investing.

 

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