Nicolette Dirk, finance writer, Justmoney.co.za
Six years since the 2008 market turmoil caused by the global credit crunch, those who held onto their investments are reaping the rewards.
Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), said that while the stock market took investors on an extreme roller coaster ride over the past six years, it would prove to be a rewarding one for those who held on.
“A R100 000 investment, made six years ago at the beginning of 2008, in the South African General Equity collective investment scheme category, would have been worth R174 445 at the end of December 2013.
This represents an annualised return of 9.7% a year for the six-year period,” said Dempsey.
Dempsey added that even the more risk averse investors, who sat out the storm in a South African Multi Asset Low Equity portfolio, would not have been disappointed. A R100 000 investment in this category would have benefited from an annualised return of 8.8% a year and grown to R165 897 over the six years ended December 2013.
How should you invest now?
Investors who have seen their investments grow over the past six years may now be tempted to lock in their gains and retreat to cash. Investors, who have been waiting on the sidelines for the right moment, may feel despondent about their investment opportunities.
Louise van Der Merwe, financial planner at Wealthup, said unfortunately they cannot predict which shares will do well in the next 12 months.
“The equities in your portfolio will depend on your objectives as well as time horizon. I still believe that you should have exposure to companies that generate most of their returns offshore. This includes companies like British American Tobacco, Sasol, Richemont and SAB Miller,” said Van der Merwe.
He added that global developed markets are well on their recovery path and South African investors need to protect themselves to further withdrawals by foreign investors from our bond markets.
“Avoid most gold mining companies even though they might appear cheap. This is the same for platinum mining companies. Retail companies may come under pressure if interest rates continue to rise,” said Van der Merwe.
Dempsey added that what you do next should be determined by a solid long-term financial plan drawn up by a trusted adviser. Such a plan should be expertly managed to adapt as you move through your various life stages of:
Investment plans for each stage of life:
• Creation and protection. This type of investment plan is suited to people in their 20s and 30s when they start investing and taking out risk cover such as life and disability insurance.
• Building and protecting. Suitable for your 40s when you grow your investments and assets, as well as protecting yourself and your family against calamities such as death, disability and dread disease.
• Utilisation and preservation. This type of investment strategy is suitable once you have retired and you need to ensure that your retirement savings will fund your lifestyle until you die.
“Avoid taking emotional decisions when investing. Buying and selling decisions driven by greed and fear will ultimately result in loss. If you have time on your side you will be able to sit out the volatile times and watch your investments grow when the stock markets are running strong,” said Dempsey.