Personal-Finance

Where to invest when the world is a mess

2018-08-07 16:21

Financially, most people are in the doldrums and savings are being depleted, but that doesn’t mean there’s nowhere to shelter your money as you hide from the storm. Angelique Ruzicka finds out if there are any safe haven investments and if we should keep our money in them until there’s more stability

US President Donald Trump is embroiled in trade clashes with China, Mexico and Canada; the UK can’t quite get a Brexit deal right; and President Cyril Ramaphosa has had to fend off claims that he is a weak leader while he attempts to lure foreign investors who are shying away from the country partly due to his rhetoric around land reform ahead of next year’s general elections.

Steve Hughes, wealth and business specialist at Prism Employee Benefits, says: “I believe that the world is going through some interesting times. The US-Chinese trade wars and the collateral damage do not bode well for developing nations.

“It’s sad when adult children with overinflated egos begin throwing their toys. And the growing tension isn’t only economic. Iran’s recent Twitter spat with Trump is beginning to make the political-religious tensions increase a little bit more.

“Sadly, there has already been so much global damage of late as a result of the seven-year-long
refugee crisis and numerous European countries are
on the verge of bankruptcy. Needless to say, the global markets are a hotbed of instability, but there are small pockets of economic stability – you just need to know where to look.”

SHOULD YOU KEEP YOUR MONEY LOCAL?

Nick Curtin of Foord Asset Management points out that “Ramaphoria” is fading as the reality of the country’s dire economic situation hits home.

“Despite the massive sentiment rally, the economy shrank in the first three months of the year,” he says.

“The rand, one of the world’s strongest currencies last year, has come unstuck as distressed public finances and foreign funding withdrawal conspired to reveal its true vulnerabilities.”

It’s clear the new president has no magic wand and, according to Curtin, it will take years to repair the damage done – in the best-case scenario. However, he encourages investors to trust investment managers with proven track records and long-term “through the cycle” investment philosophies.

Francois van der Merwe, head of offshore investments at Novare, adds that you should take your risk profile into account when deciding where to invest, and says that opportunities may lie in income funds such as the Nedgroup Investments Flexible Income Fund and the Prescient Income Provider Fund.

“The market is pricing in an interest rate hike over the next 12 months, and you should get a better return with income funds than money market funds as a result. And these income funds can also take part of the money and invest it overseas – income portfolios can take up to 30%, but normally they do between 10% and 20%,” he says.

If you need to access money in the short term, money market accounts are still an option.

Hughes says: “Putting money into a standard money market [bank] account would normally seem absurd as the returns are barely keeping up with inflation, but, truth be told, if you need money in the short term,
find a bank with a good solid rate and slap some in there. Stability is king at the moment, but no matter where you’re putting your money, be careful of costs and fees.”

If you’re really nervous, you could turn to traditional safe havens like gold.

Floris Slabbert, managing director of Ecsponent Financial Services, warns that gold has taken a recent knock and has declined 8.9% over the past 90 days.

“An asset class that is usually a good safe haven should be commodities. Gold used to be popular, but it’s been the opposite in the past year,” he says.

However, if you can wait for gold to turn, now may be a good time to invest as the price is coming down.

LOOKING ABROAD

If you’re worried about how things are going in South Africa, you may be considering investing more money offshore until the local economy recovers a bit and issues such as state-owned enterprises are stabilised.

But before you do so, look under the bonnet of your investments (unit trusts, pension fund) to make sure you don’t already have exposure to other markets.

Slabbert points out that many unit trusts and pension funds already indirectly invest in companies such as British American Tobacco, which benefits from a weakening rand and a strengthening dollar, and Naspers, which has a stake in China’s multinational investment holding conglomerate Tencent.

US government bonds have also been a traditional safe haven for investors who are looking for shelter for their hard-earned money. The US, after all, is the biggest economy in the world and is highly unlikely to default on its debt obligations.

But Slabbert points out that South Africa’s own government bond is yielding a much better return at 8.05% compared with the US’s 2.9%, but adds: “It all depends on how you see the South African economy and South Africa’s ability to repay its debt.”

WHERE TO INVEST

Experts say it all comes down to what your investment horizon is (how long you want to invest your money for) and what your risk appetite is like. The general rule of thumb is that, if you’re young, you can take risks and invest in shares and unit trust funds – the argument being that you’ve got a long time to allow markets to recover. And shares generally outperform every other asset class.

However, if you’ve got a shorter period in which to invest, you may want to get some advice about where to shelter your money until the volatility in the market subsides.

Hughes says: “Some believe that gold or other commodities are a safe bet. Truth be told, there are pros and cons to each of these. Each investor needs to consider their time horizon of the investment [how soon they may need the money] and where the highest risk may be. A carefully selected blend of all or some of these may not be too bad at the end of the day.”

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December 16 2018