Burning Issue 1 – Future Growth on my Investments

We recently asked clients what the single biggest burning issue in your financial and investment thinking was in these uncertain times.

 

The 3 most prevalent issues were:

  • What is the expectation for the future growth of my investments?     29%
  • Which way will the Rand exchange rate move in the time ahead?         27%
  • What portion of my assets should be offshore?                                                16%
  • The rest, which was a whole range of questions                                               32%

 

We will attempt to answer some of these questions in the next few newsletters, and of course you are welcome to discuss your concerns with us at any time. That is what we are here for.

 

Future Growth of investments.

 

Over the past few years our philosophy, backed up by data and analysis, has been based on the 100 year history of real (above inflation) growth rates which were as follows:

South African shares     7% pa

Bonds                                     3% pa

Cash                                        1% pa

Balanced portfolios       5% pa  (Using our 3 preferred funds)

 

Over the past 10 years we have seen the balanced portfolios grow on average by 7% above inflation per year, including the market collapse of 2008. Our economy grew by 5% for part of that period, dropping to 2%-3% in recent years. The economy is likely to struggle to grow by 2% pa over the next 3 years, which means that returns on shares should be lower, averaging 4-5% pa and balanced portfolios averaging 3-4%% real per annum. This will be marked by periods of volatility, given the current state of markets and economies.

 

What should you do?

 

Ensure that you are well allocated in the different areas of the market and offshore, to squeeze out additional returns, depending on your time horizons for the investments.

 

We do not suggest moving into low growth assets such as cash, which are likely to lose value after tax in real terms. You are also likely to miss the recovery opportunities which are often unexpected and large.

 

If you draw an income from your investments, 5% pa was safe in past years, but starts becoming more risky in periods of low returns. So, if you’re drawing more than 5% against your capital you should be aware that the capital could be depleting faster than you would like.