2018 has tested investor patience
2018 has been an extremely frustrating year for investors as markets have fluctuated wildly. The JSE All Share and World MSCI Indices’ returns year-to-date are down 11% and 2% in Rands respectively.
Equity markets by nature are volatile and this is a critical aspect that investors need to understand and tolerate. Markets have corrections. This is when valuations are normalised or brought back to their long-term averages. I have worked through three previous market corrections: 1988, 1999 and 2008. Interestingly, these occasions are all 10 years apart. These periods prompted fear, but also brought enormous opportunity. The lesson learned was, despite the associated fear as values were declining, the world was still the same place and life continued normally for most people despite the immediate pain of a decline in savings. As we know, markets recovered within a few years and no hardship was felt for investors who remained resolute and patient.
Unlike 1988, 1998 and 2008, which were short, sharp corrections, the last four and a half-year period of volatility, combined with a zero return from the JSE, is actually another form of a market correction. Unfortunately, this has been a slow torturous correction as valuations have once again readjusted back down to more normalised levels.
Savings must take on risk to beat inflation
We all need to save. For your savings not to be eroded by inflation you need to invest in some form of asset that will grow above inflation (6%) after tax, which is around 9% before tax. An investment with a reputable bank in a money market or fixed deposit account will not give you this required return to beat inflation over the long term. Therefore, a growth asset (which carries risk) needs to be included in your investment portfolio. The best area to invest in a growth asset is the stock market through a unit trust. Unfortunately, risk is coupled with volatility, which requires a longer-term period to realise your desired above-inflation return.
None of us like to see the price of our investments fall, but unfortunately this is a part of long-term wealth creation. During periods of low returns, as an investor, it is critical to remain focused on your long-term objectives; sit tight so that you don’t lock in losses.
Remember, in investing, the lower the historic market returns, the greater the potential for improved future returns.
Investonline had another fantastic year
Although markets were challenging, our clients benefited from us adopting a lower risk investment strategy. We cautioned that equity market valuations both locally and globally were stretched and that portfolios should hold lower than normal equity allocations. This has put our clients in good stead as their investments have not declined as much as the markets in 2018, resulting in an average outperformance of 3% year-to-date across our different risk-profiled portfolios.
I want to thank our clients for being patient and resolute through this difficult investment environment. We are constantly working hard as we research and engage with various market participants to provide the most proactive (not reactive) solutions.
As a business, Investonline has had another strong year growing our assets and client base significantly. The highest quality of advice remains at the forefront as constant training kept staff up to date with the latest legislation and abreast of the ever-changing investment environment.
Learning remains a key pillar of the business, which encompasses market research and seeking the latest financial planning techniques. We continue to invest in our staff and employed a variety of consultants to enhance our financial planning tools and information systems.
Our culture of hard work and client service continues to enhance our in-depth knowledge of financial planning and promotes better investment solutions.
Investment Outlook for 2019 in South Africa
We believe investment returns will be better in 2019. Much of the global disruptions and bad news anticipated for 2019 are priced into the market. However, sector selection will be important, such as local vs offshore, developed vs emerging economies, industrial vs financial vs resources. Big diversions in these different areas have created opportunities and therefore we believe there will be large differences in fund performances.
Understanding what is priced into an investment is always the most difficult part to understand or calculate for investors. Only highly experienced investors can get this right and that is why selecting the right unit trusts remains the best place to invest. We have done well in these selections through our investment strategies and philosophy process.
We look forward to another successful year of ensuring that our clients have the best financial plan that provides them with the most suitable investment strategy to match their particular needs.
We wish you a festive holiday and look forward to working with you in the new year.