HILTON TARRANT: We get a lot of questions from listeners on the Market Update, some very technical questions, some very specific questions, often a view on a share on a sector which the professionals are allowed to have – I’m legally not allowed to have.
One common question that I do get is typically from a listener who has a specific amount of money to invest, with specific options in mind, and perhaps more importantly specific expectations in mind.
Simon Brown of JustOneLap is with us in the studio, and Magnus Heystek of Brenthurst Wealth also with us. We’ll get to the question. It’s from Jason. He’s a student down at UCT.
But, Magnus, let’s first start with this expectation thing. It’s very, very important that, if you are looking to invest, you are looking to save money for whatever reason. You’ve obviously got to have a goal in mind – and with that comes expectation. Sometimes expectations are out of touch with reality.
MAGNUS HEYSTEK: Yes, good afternoon, Hilton. Just some background. I attended the annual investment forum at Sun City this week, where most of South Africa’s top investment professionals were presenting to the advisers and giving their views and opinions. It ranged from Coronation to Investec to Stanlib to Allan Gray, Foord, etc. We all spent two days with these guys. We were given a view of what they expect going into the future. There was a fairly strong consensus that the good times for the South African and emerging markets that we’ve experienced over the last 10 to 12 years, where the returns have been above mean. I’m talking about equity returns of 20% per annum, probably 22% per annum [were over]. It warned of the expectations that have been built into investors, new investors coming with fresh money, looking in the rear-view mirror, thinking ah, those are the kind of returns we are going to be getting going forward. And I think a considerable amount of time was spent warning that it’s not going to happen.
The one interesting lecture that I attended was by Coronation, one of our top fund houses. And the question was, what do they expect going forward? Of course, there are no guarantees, and nobody knows what the future holds. But you have to at least do some analysis and do some projections based on what you know, what happened in the past and what worked in the past. And the consensus was that global equities are still the preferred asset class, with an expected annual return in rand terms of between 10 and 13% per annum for the next 10 years.
The second best, with substantially much lower expected returns are local equities, anything between 7 and 10%, and winding it down to global bonds, local bonds, property market. What they are saying is if you can average, over the next 10 years, 10 to 12% you are going to be doing well. And I think that point needs to be stressed.
You cannot look in the rear-view mirror. I see it every day in my practice – people walk in and say: “Oh, I see that the listed property sector has given 22% per annum for 10 years – that’s where I want my money.” That’s not how you invest money, because we already know that there’s a substantial structural change taking place in that sector.
So that was just the background. Returns going forward are much more muted than in the past.
HILTON TARRANT: Simon, let’s get to Jason’s question. He’s a 23-year-old medical student at UCT, a newly aspiring investor. I like the way he calls himself that. He’s got R30 000 to invest, obviously saved over a period of time. He’s got three options here.
I think before we get into the options it’s perhaps important to stress the fact that this applies to his unique situation, and every single one of us has a unique situation with a unique level of debt, for example; a unique level of assets, for example; a unique set of expectations as well.
SIMON BROWN: Good evening, Hilton. And a unique time frame. Jason is 23. He’s starting 20 or 30 years before many people do. He’s starting at the ideal point. To Magnus’s point – if you are really going to be doing global equities at 10, 12 or 13%, that’s not a bad return if you’ve got time. If you are looking to retire in two years, it becomes a whole lot harder. If you are younger, you’ve got that patience, you’ve got the space to manoeuvre. You can take market crashes like we saw in 2008, and broadly take them in your stride because you’ve got that time horizon on your side.
HILTON TARRANT: His three options that he has researched – he’s researched an ETF or passive investment, something like Satrix. He’s researched unit trusts, of course, where you have fund managers picking specific stocks, given that they are experienced– he makes that very important point. And then his third option, direct share ownerships, maybe something like Auto Share Invest or even just direct holding. Of those three, where is a good place to start?
SIMON BROWN: To start, I like the broad-based, the ETFs. Magnus is talking offshore, there are offshore ETFs and the like. You get currency exposure at the same time. And you can get into Europe and the UK or into the US. My preference is probably the US at this point in time. And that’s a good space. When folks come to me either on a regular purchase or a lump sum, I say to them ETFs are nice and simple, they are a relatively cheap product. In Jason’s case he’s got the time on his side. He can take the risk of equity, because equity is a risky asset class.
What I like as well is the idea of a core satellite approach. At the core of a portfolio is ETFs. He talks about Auto Share Invest, but the core being your ETFs. And then occasionally he can build up monthly from as little as R500 a month, individual, quality blue-chip stocks around that space, so that he can have a bit of spice. By spice I’m not talking about the small, little, tiny stock that might double in a week or halve in half an hour. I’m talking about sort of really quality blue-chip companies.
HILTON TARRANT: Magnus, your thoughts?
MAGNUS HEYSTEK: R30 000 – to start a share portfolio buying on a monthly basis is not big enough. He’s just not going to buy quality stock. He has a choice between ETFs or unit trusts, or even both. The second choice he has to make is: Am I going be buying local stock or am I going to be buying offshore stock?
And his third choice that he has to make is: Am I going to be doing it myself, or am I going to be getting advice from somebody and paying for that advice? He makes those points clear. He says: “I can save a lot of money doing it myself.” A medical doctor in my opinion tends to work extremely hard. You are not going to be spending time on investments night after night. The big thing – and I say this to all young people – follow the Nike approach when it comes to investments. “Just do it”. Start doing it. The choice of the instrument, the asset class offshore, onshore – that is secondary in my point of view. Let it become a habit, engrained in your personality. You put away that 10%, 15% year after year, and you will build capital.
I looked at a newsletter from a guy called Charles Hattingh – apparently he’s well known in the accounting world – who calculated that, if you had for the last 35 years just put away R150 a month, escalating at 7%, not onerous a value today, and I’m assuming he was using the JSE index, you’d have R45m. You don’t have to be an investment genius, you just have to do it. And I think that’s the first step.
And then secondly, know yourself. Investment markets are going to teach you many lessons in life, and that’s one of the biggest things. People have these emotional connotations to their choices of investments and they get angry or upset. Just let it become automatic in your life and you will build wealth.
HILTON TARRANT: Thanks to Magnus Heystek and Simon Brown. We look forward to a further discussion next Friday.
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