In a recent article, Coronation feeds back on results from their second annual client survey and discusses the disappointing returns from growth / risk assets over the last three to five years. We outline the salient points below:
Growth assets have disappointed and it is understandable that some investors may want to give up on these assets, and switch to more stable income investments.
Taking on risk over the last five years has provided no additional return above low-risk money market. Therefore, should one rather ‘de-risk’?
Their recent survey covered investor expectations. Short-term income investment expectations were for an annual return of 9%, which compared to an actual 8% and 7% over the last three and five years respectively. Long-term growth investor expectations are around an annual return of 12%, which compared with an actual return (of a typical balanced fund) of 4% and 7% over the last three and five years respectively.
The need to act when expectations are not met is an understandable human response but could result in several unintended consequences when ill conceived.
Analysis shows that many investors are de-risking their portfolios, which is after equities (risky assets) have already underperformed cash.
Looking at history, an investor with a 10-year investment horizon typically experienced:
- SA equities – on average – returned inflation +8% per annum since 1930.
- The average equity returns from 1994 (advent of democracy) revealed a return of inflation +10% per annum.
- Returns exceeded inflation 90% of the time since 1930 and 100% of the time since 1969.
- Lower return periods are followed by higher return periods and vice versa.
There is no doubt that holding risky (growth) assets over time have produced superior returns.
What is important now is the view going forward, which is more promising.
Risk and reward are intrinsically linked and a genuine investment concern is that investors are diluting their ability to participate in future growth due to their disappointment of recent pasts.
The reality of how markets work means that one’s expected return increases as past returns remain lower for longer.
Our view at Investonline is that it’s paramount to match your appetite for risk with the correct combination of growth and income-generating assets. Have an advisor formulate the appropriate investment strategy to suit your risk profile and future goals.