When it comes to coffee-shop conversations, little is said about the long game in the investment space – it’s often about which asset manager did well this year, what outperformed everything else in the last quarter… etc.

But, if you’re an investor, chances are high that you’re saving for future events that have a five-year-plus event-horizon (as we all should!).

Here are four thoughts for investors looking to improve their long-term results. If you’re feeling shaky in your investment behaviour, these will certainly help to master your long game.

Tip 1: The past does not predict the future

It’s the most common mistake in the book, so entrenched in investment culture that even the most seasoned among us fall into this trap. It’s the thinking that ‘X Asset Managers beat the index by nine percent last year so they’re the best bet this year’. X Asset Managers in turn, who may not even have the same actual people on board anymore or may have undergone a whole host of other changes to the ‘magic formula’, adjust their fees up accordingly.

There are plenty of problems with this. One is that, if you keep a close eye on the top performers, you’ll notice that the same managers are almost never ever in the top spot consecutively. This means that if you doggedly follow the best performers, you’re going to switch funds every year, decimating your return potential.

Secondly, as we’re well aware of in other spheres of life but conveniently forget in investing, our global future and rate of change in the next decade will be different to anything in the last century.
“But surely that won’t change the actual nature of the markets,” some may say.

Yes, it can. We’ve already had what should be an impossibly long bullish cycle and more black swan events in a decade than ever before. We need to beware.

Tip 2: Switching frequently is usually a bad idea

Most of us know the two cardinal sins of investing: not preserving when switching jobs and chopping and changing funds or managers too often.

But what about when a crisis hits? Switching from other assets into cash may be just as harmful.

When the going gets tough, generally, most investors go for cash. And there is some wisdom to this – cash is a great low-risk asset that generally does well in times of crisis and is therefore event-horizon specific. But taking money out of, say, equities, and exchanging it into cash is often a case of winning the battle but losing the war.

The thinking is that ‘if I get this out of equities before equities experiences a downturn and put it into cash, then switch it back, I’ll save the amount I would have lost.’ This gambles the losses from switching with the gains made from avoiding a loss when markets turn south. The problem with this is that most (who are not whizz asset managers by profession) will get the timing wrong. This leaves you with two losses when, longer term, simply staying put would have made more sense.

Tip 3: Care about shares

There are widely held misconceptions about different asset classes, many of which are harmful for players of the long game in investment. One of the most common is that equities are risky while bonds are safe, and cash is the safest of all. And a short-term glance at the market may seem to confirm this belief, however the opposite is true when it comes to longer-term strategies.

Think of investing in cash (a.k.a. the money market) as the investors’ equivalent of stuffing your cash under the mattress. If your aim is to not lose any money – then you’re in luck. That money may be safe from being lost short-term. But it’s also not growing as much as it could, while other things like CPI are making it worth less and less. Equities, on the other hand, have shown to give back the bigger returns compared with cash longer term, even though short-term your chances of making losses are higher.

The lowest annualised local equity returns versus the highest annualised local cash returns over different investment terms

Based on historical returns data since 31 November 2007. Source: Morningstar to end of December 2018

Tip 4: You get what you pay for

One of the biggest ‘grudge purchases’ of the financial world, after insurance, is the fees associated with funds. Some charge two or three percent, others far less. Most investors see that as three percent that could have been invested on their behalf that’s now going into someone else’s pocket.

However, you really do get what you pay for often with funds, just like everything else. According to Discovery’s August Smart Money newsletter, “the total expense ratio (TER) of an investment fund gives an investor an indication of the total fees of that fund. If we compare a relatively high-cost fund (TER of 2.47% in 2008) with a relatively low-cost fund, (TER in 2008 of 1.41%), the ten-year return from the more expensive fund was 77% higher than that of the less expensive fund.”

The good news is that regulation has cracked down significantly on what a fund may legally charge in terms of fees, why they charge fees and how transparently they disclose this information. In essence, you should only pay so much and know precisely what it is you’re paying for. If not, the law is on your side as the consumer, something which wasn’t always the case when this industry was younger.

Having enough for future life events is a marathon, not a sprint. Let’s put these four tips into play, and you and your wealth will be able to go the distance.

Original article: Discovery

South Africans (and many others) sometimes suffer from an unbalanced bias when it comes to the United States: we assume that anything American is top-class. Certainly, when talking about the markets, South Africa’s indices and analyses are always about what America is doing. The dollar has, for a long time, been the most influential currency.
However, this may not be for much longer. Investors are preparing for what’s becoming known as ‘de-dollarisation’.

What is de-dollarisation?

De-dollarisation simply means the usual suspects in terms of the most influential currencies in the world (not to be confused with the strongest – the GBP is still queen in terms of strength but doesn’t affect markets the way the dollar does or as frequently, typically) are going to affect markets less tyrannically than before. Where the Dollar and Euro dominated currency ‘influencers’ before, we’ll see other currencies becoming more important, while the dollar becomes less so.

In one sense, this is simply a long-overdue effect of globalisation. Last century, America was the centre of the world in terms of just about everything economic, but that began to change years ago in many spheres.

So, currency-wise, if we get less dollar starstruck over time, who will be influencing us more?

The sun rising in the East

The same people who affected America’s fall from the number one spot in many other areas including trade has been China and her neighbours. Asia has seen a meteoric rise in trade, industry and economic influence that will likely see emerging economies more impacted by the Yuan (or Renminbi) and other Asian currencies, rather than the dollar, over time.

What will be the impact be for investors, when de-dollarisation finally hits? It’s impossible to say, really, as it will be a world-first for the rand and many others, but it may have some positive effects. Thanks to the Trump administration, the USD has been notoriously volatile of late, and it’s likely Asian currencies will be far more stable and predictable. In general in investment, boring predictability is good for business.

And, if you’re interested in long-term views, there’s even better news to look forward to.

The even brighter future after Asia

Will Eastern currencies always be dominant? Unlikely. It may take a long time, but new currencies will probably emerge as independent world powers. And they’re likely to come from… Africa.

Yes, you read that right.

China and her surrounds are doing well, but are also by and large ageing populations, who have seen massive shifts recently thanks to their success. For example, while Asia’s population were largely working parents and corporate tycoons, business confidence figures and savings rates boomed. But now, much of those same people are entering retirement age, stopping and even drawing on those savings and no longer working to help the FDI (foreign direct investment) roll in at the same rate.

By contrast, most of Africa (except SA) is the youngest continent in the world, with far more people of working age than retirement. The US Pentagon even estimates that, by the end of the century, as many as one in every three people on the planet will be African. Africa’s tourism has grown a whopping seven percent in the past year alone, exports are booming too, and there are no signs of slowing down.

China’s vanishing current account surplus

Source: State administration of Foreign Exchange, 2018

The bottom line

Hold onto the old adage: don’t place all of your eggs in one basket. What this means is that as the popularity for moving funds offshore increases, or more people consider financial emigration, it might be wise to bear in mind that the Dollar is no longer a ‘sure thing’.

South Africa is an enterprising and entrepreneurial nation… which is why it’s interesting that it can be so tough to do business here.

Of all new businesses started in South Africa, nine out of ten of them will close their doors within the first two years. Government grants are talked up but are thin on the ground, B-BBEE requirements are onerous and keep changing, and then there’s the red tape.

Bureaucracy has been South Africa’s Achilles’ heel in the corporate sector for a long time, and figures show that it’s hamstrung us in the past. In the 2009 World Bank’s annual ‘Ease of Doing Business’ survey, South Africa was at a not-great-but-comfortable 32nd in the world out of almost 200 nations. But by 2014, just five years later, that figure had slipped to 43rd in the world.

And in 2019? We are now at a nail-biting (and embarrassing) 82nd place out of 190 countries.

So, what’s a business owner to do? Cut and run for easier, greener pastures?

Actually, hanging tight might be a better solution, because it looks as though doing business is about to get far less complicated. Fast!

Orders from the top

When Cyril Ramaphosa became president of South Africa, the corporate sector cheered. Not just because of the alternative, but because of the significant fact that, for the first time in our democratic history as a nation, the man in charge was a seasoned entrepreneur first and a politician second. For example, while previous South African presidents have mentioned ‘boosting business’ in vague terms, President Ramaphosa has been uniquely articulate about his focus.

He said in his most recent SONA speech that government is:

 “urgently working on a set of priority reforms to improve the ease of doing business by consolidating and streamlining regulatory processes, automating permit and other applications, and reducing the cost of compliance.”

“The World Bank’s annual Doing Business Report currently ranks South Africa 82 out of 190 countries. We have set ourselves the target of being among the top 50 global performers within the next three years,” he said again during his second SONA in June – the first mention of the World Bank survey ever by a president during SONA.

These pronouncements are starting to bear fruit. Marginal rallying of SA’s business confidence scores (after decreasing slightly again in July and August) shows that the private sector is willing to change its mind about SA’s business growth prospects, which can only be good news. And during the year, the ‘ease of starting a business’ aspect of South Africa’s World Bank ratings has improved by 1.25 percentage points.

This may seem like a small change, but it’s certainly a start in the right direction! And it is a welcome sign to local businesses that things are getting better and not worse for entrepreneurs here in SA. 

We can be positive about our future – things are about to get better!

August is traditionally about celebrating women, but we believe every month should honour the strong ladies that make our world go around.

Here, courtesy of Investec, are five inspiring tidbits of advice to fire you up for slaying the rest of your work week. Like a (woman) boss.

Learn from your mistakes – and everything else

Palesa Moloi, the former accountant, now successful businesswoman and technologist who created parking app ParkUpp, advises, “Never stop exploring, and learn from your experiences, books and other people. All our ideas are usually initially wrong.”

“Your journey as an entrepreneur is about becoming less wrong about what you’re doing and finding out how you can be right over time,” she adds.

It’s all about repetition

“If I could go back and advise my younger self, I’d tell myself to never give up. It’s just a matter of being consistent – I would tell myself to just go out there and make the world your oyster,” says eighteen-year-old Ongeziwe Mali, who was the youngest player in the South African women’s hockey team at the 2018 World Cup.

Don’t focus on the hate

A successful woman is bound to face plenty of hurdles and resistance. Which is why the advice of Mmane Boikanyo, Marketing Manager for TuksSport at the University of Pretoria, is testament to this .

“Don’t get distracted by things like gender inequality, ageism or racism, because what you deliver will be the true judge of your competence and potential,” she says. Her words recall the famous line by the great Reverend Jesse Jackson: ‘Excellence is the best deterrent to racism and sexism.’

Go all in

Freelance photographer Tshepiso Mabula knows that following your heart to find your dream work has ups and downs. Which is why she advises others to commit – to believing 100% in themselves. “When you take the decision to bet on yourself, everything else is bearable, because in the end, all the hard work and tears are going to culminate in success,” she says.

Follow your passion

Kate Groch certainly stands by that. The founder of the Good Work Foundation, which helps educate and inspire rural kids in the Free State, Groch says to follow your heart first, no matter your circumstances.

“We’ve got young people who are studying Fine Art, which is not a normal thing to be studying from a poor community, because the typical mindset is, ‘what’s the job afterwards?’ But you don’t just have to have a job – you can start a career. Kids often haven’t had the luxury of really looking at what they’d love to do, and where they would add the best value to the planet.”

2019 has been a financially hard year for many and for South Africa. Investors in particular, have seen low returns in a high-risk (election) year after several lean years.

In financial climates like this, many panic and thoughts of losing money can lead to impulsively pulling out of investments.

In the words of Warren Buffett: “The investor of today does not profit from yesterday’s growth.”

Past performance is no guarantee of future returns. Stock investors sometimes closely watch how certain funds performed over the previous 12 months, then switch to higher performing funds thinking the following 12 months will be exactly the same.

However, it is important to stick it out. We need to resist acting out of emotion and impulse when it comes to selecting investment funds. It helps to gather all relevant information and really understand our goals, investment horizon and how the funds are affected before taking the jump.

A successful investment strategy needs a level head and requires due diligence to understand everything rather than pulling out at the first sign of danger.

Economies also move through seasons. In stormy seas, you don’t jump ship. This is different to discovering your own ship has a leak – Steinhoff or Enron, ‘ships’ with serious ethical problems, come to mind – this is about uncertain and unkind macroeconomic conditions and various headwinds that slow progress down. That’s stormy.

And in a storm, everyone’s ship is getting tossed and turned, however calm their crew may look. It’s about sitting tight and riding it out, the priority of stormy weather is staying safe and in the game.

The good news is, sooner or later, better conditions always come – and patience pays out.

September celebrates National Wills Week, a reminder to us all about the importance and necessity to create a Last Will and Testament. According to recent statistics, only 30% of South Africans have a will – which means that we have to be talking about this a lot more!

We have seen countless movies and TV series detailing the hijinx that can occur without a will. Unfortunately, in the movies all people with wills are either rich or eccentric, leaving many of us with the impression that a formal Last Will and Testament isn’t really for ordinary people.

However, it’s an essential element of a robust portfolio.

If you have loved ones and/or any possessions to your name, or children who would need to be cared for – you would greatly benefit from a professionally drafted will.

The dangers of DIY

Some may feel that it’s cheaper to simply write up their own will and keep it as general as possible so that ‘everything is covered’. The reality is that it’s generally not expensive and having sweeping generalities only complicates matters.

Legal details and regulations change regularly regarding wills. Unless it’s your job, it can be hard to understand and keep up with the constant changes. Even a small detail in a will that’s incorrect or not in line with legislation can leave your loved ones paying extra legal fees and waiting months and even years to iron out the details – or worse, left without enough income to cover monthly expenses.

Vague wording like “I leave my cars to my sons” is typical of a DIY will, and may be disputed – turning into an expensive and lengthy legal battle. What if the one car is worth R80,000 and another is worth R300,000? What if someone arrives, claiming to be a son? Words like ‘descendants’, ‘my business’ or ‘personal items’ are also legally vague, pitfalls and loopholes are hard to spot if you’re not a trained lawyer.

Legal terminology like “bequest of the residue” are terms you may have never heard of and would certainly not put in your Last Will and Testament – all the more reason to hire a professional and save your family the additional heartache and stress later.

There is a lot of good financial advice out there which goes something like this: ‘you know that money you don’t use every month? Well, take R50,000 and invest it in X now, and you’’ be happy later.’

Sound familiar?

The problem with this advice is that it’s incredibly alienating for the other 92 percent of people out there who a) don’t have money left over at the end of the month and b) would laugh and rub their hands with glee like Scrooge if 50,000 unaccounted-for rands came calling. That’s not real life, for the average Joe. So, where does one find financial advice for people without the silver spoon?

This blog post is for you. It’s about a term which may well answer many of your problems: microsaving.

What is microsaving?

Just like the name says, this is putting small bits of money aside. Think of it as the digital equivalent of what your grandparents did with a kitty back in the day, dropping spare coins regularly.

Microsaving is about taking whatever amount of money is small and unnoticeable to you and tucking that away in a place you can’t spend it. So, for instance, you buy a weekly wrap at work that costs R35 and so your microsaving method of choice squirrels away the R5 into a savings pocket, separate account or another wealth preservation vehicle like your RA. If you know that you regularly come out at the end of the month with about R900 aside for your daughter’s ballet things, which often comes to R800 actually, microsavings pockets that extra hundred.

These are by no means big amounts and – caution – no microsaving tool will get you the returns that investing R50,000 in a reputable vehicle would, but they are certainly better than not using microsavings. Here’s why.

Mindfulness matters

For most of the people that can’t afford to save or invest traditionally, it’s not entirely true that they don’t have one single spare cent unaccounted for each month. It’s more a mindfulness issue. Money coming in like salaries are given vague budgets at the beginning of the month and then, like a black hole, it juts vanishes into a million little things and unforeseen expenses. Do you have an emergency fund each month? Do you estimate and account for how much you spend tipping car guards and paying for parking? And because savings and investing are often the last in line, the if-I-have-enough amounts, by the time their turn rolls around there is no money to save or invest.

A microsaving app, banking feature or some other investment vehicle (Liberty’s Stash and FNB’s Bank Your Change are quite good) takes into account this lack of mindfulness by taking off that R5 from the wrap, R100 from the ballet recitals money, knowing you won’t notice. And then you have something like R400 at the end of each month saved away – certainly not the R2000 you were hoping to save, but better than the zero you were headed for.

From microsaving to microinvesting

Of course, it’s not just saving that this approach is good for. Instead of sending your loose change into a savings pocket, what about into an investment vehicle? Or your retirement fund? Or the trust you as a couple set up for the kids’ university fund? The possibilities are endless and, especially when coupled with intentional saving and investment of larger sums, microinvesting can be powerful.

Sometimes it pays big to go small…