The rand is on a joyride that is causing investors sleepless nights. In addition, emerging markets have been infected by the Turkish flu, Trump is rocking the economic boat around the world and the JSE is (still) going nowhere. How do investors navigate this hectic time?
Change the game - focus on you
Instead of getting caught up in the current state of affairs, where you try to anticipate how Trump, China and Turkey are going to affect markets and then decide what you should do, rather focus on your own objectives first.
If you invest money according to what you think the politicians are going to do, you will also need to anticipate how investors will react to these politicians and then invest your money to profit from these actions.
Historically, this has proved nearly impossible. The US stock market has continued booming since Trump took power in 2017 and the rand has weakened since Ramaphosa came to power in SA. One could argue that both trends should have gone in the opposite direction.
Instead of getting caught up in an impossible game of prediction, rather determine your investment strategy based on your own situation. Using factors that you know and can control (to some extent) is a much more reliable and profitable way to invest.
Some of the factors that you should consider are:
- How long you need to invest,
- How much can you tolerate losing in a bad market crash,
- Your financial ability to keep investing in difficult times.
These factors will help you to determine how much of your money can be invested in higher growth (and also more risky) assets like shares and property. If you find that you are under-invested in these assets, you can then decide to increase your allocation to shares without worrying too much about politicians and market cycles.
Everyone needs some money in shares
Investors are really getting despondent with the lack of returns from the JSE. Some are starting to lose hope and are considering guaranteed products that offer a fixed growth rate. Sadly, the fixed rates are the same as a money market interest rate and will not protect investors against inflation.
All investors need a minimum of 35% in shares if they want their capital to grow at the rate of inflation. However, most investors can take more risk by investing a greater amount in shares and could go as high as 75%, depending on their age, tolerance for risk, and time frame for investing.
The rand has weakened dramatically after our GDP numbers were released at the same time as Turkey and Argentina’s troubles were in the headlines and many investors are panicked about sending money offshore. Once again, it would be tempting to try anticipate what the rand is going to do based on events in other countries, domestic politics and investor sentiment. You (and everyone else) will get this wrong.
Rather have a clear strategy for how much to invest overseas – everyone should have a minimum of 25% invested overseas while very wealthy families who will leave money to the 3rd generation could have 75% invested offshore. Once you know how much you want to send offshore, you need to decide when. I think you should have a target level for the rand before making your offshore decision – R13.50 to the US dollar is a fair level to buy offshore investments and so when the rand is above this level, rather wait until the rand strengthens again.
Cash is not king
We should all have a limited amount of cash investments for emergencies and as a reserve to act as a shock absorber in our portfolios when markets collapse, but we should not have too much cash. For any investor a long-term allocation of more than 35% to cash is too much, unless you are Warren Buffett.
Take time, make sensible decisions based on your requirements, and don’t get caught up in the noise of markets.
Warren Ingram is a Wealth Manager at Galileo Capital. www.galileocapital.co.za Twitter: @warreningram
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