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The importance of committing to a plan, and sticking to it

Investors need to remain committed to their investment strategies, and in particular offshore exposure.

The most repeated question of recent times is: ‘What do you think the rand is going to do in the next few months?’.

To be honest, I don’t have the answer, and neither does anybody else. Commentators like economists and analysts … and myself … try our best to provide commentary on the global and SA macro-economic realities, but recent events have shown how quickly things can change.

Each investor or client who walks through our office doors is different – different in the sense that they each require a unique financial plan, and most importantly, a well-structured portfolio that suits their financial needs. There is a common element that every client looks at, and that is performance. Performance, however, is a difficult conversation to have, especially when it’s negative, and most of the time too short-term focused.

The nature of investing is simple. Investors need a structure that is applicable to them, bound with guidance from an advisor, but their most valuable asset is time. Markets go up and down and the rand goes up and down, but trying to time markets and currencies is impossible, and is a recipe for disaster. Long-term commitment will always work in the investor’s favour, especially with an actively-managed portfolio.

The rand vs the US dollar (if it was a boxing match, we would’ve been KO’ed a few times already) has garnered a lot of media attention over the years and very much so in recent weeks. Barely seven months ago, the rand was trading at R11.50 (Ramaphoria was in full force). At the time of writing this, the rand was trading at R15.44 to the dollar, which is a drop of about 34% in those seven months. If we go further back in time, to a brief period in 2011 when the rand/ dollar exchange rate was at R6.91, this an even larger change at 123%. Let that sink in for a moment. One USD bought you R6.91, and today, it buys you R15.44. Now, we are all aware that local costs have increased, but given the economic and political environment, the inherent risks to investors are still clearly evident, and don’t seem to be slowing down any time soon.

Where will the rand be in 2019? Well, according to Annabel Bishop, Investec’s chief economist, we could see the rand trading at R24 to the USD at the end of 2019 (a worst case scenario). In the same breath, the best case scenario sees the rand at R7.90 (in a perfect world). If we were to take the median level into account, this still leaves the rand at R15.95 by the end of 2019. The bottom line is, nobody knows what is going to happen. However, investors who remained committed to their investments and didn’t panic, have and will continue to benefit greatly.

The importance of this example is evident. Investors who held offshore exposure prior to February 2018 saw a large drop in their portfolio values, as the rand strengthened significantly. However, now seven months later, we are a seeing rand levels reminiscent of Nenegate in 2015. Those who remained invested have done well, while investors who panicked and sold their dollars and/or offshore exposure made a loss. It will be expensive to get back the same offshore exposure. Even investors who took money out a year ago, when the rand was at around R13.50 to the dollar, have greatly protected their investments.

Furthermore, we need to look at markets. If you place the returns of any market under a microscope, in the short run there will always be periods of poor performance. Markets are cyclical. But if we expand the horizon, we can see that in the long run, many of the world’s stock markets have performed well over the past five years, and this is including periods of underwhelming performance in the short run. Our very own JSE has been performing badly however. It has only managed a cumulative return of 33.30% in rand terms over the past five years, compared with the US S&P 500 which has returned roughly 75% in USD terms over the same period.

This is by no means a call on the rand or markets. This is more of a recommendation that investors need to remain committed to their investment strategies, and in particular offshore exposure. I have unfortunately seen the same examples happen time and time again. Investors might get offshore exposure at RXX to the USD, see an increase in the rand value (from a currency point of view), panic, then sell all of their dollars at a loss. Fast forward a few months later and the rand is weaker than it was before they started, and the proverbial ‘boat’ has been missed.

Brenthurst Wealth has been very vocal about the need for offshore exposure, either indirectly through asset swaps or directly in the form of direct offshore investments, but the greatest asset for any investment on a general basis, is time. Markets can change very quickly, as well as currency values, but it’s important to have a strategy, and stick to it. Is the perfect storm brewing? Or will we see the light at the end of the tunnel? Nobody knows, but make sure you stick to your strategy.

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