The Corona Crash – Will you lose all your wealth?
Spoiler Alert: Investors in well diversified, listed portfolios rarely lose, if they follow the advice below. Click image to expand. (Reader warning, the Author is Irish) The sub-title question is an extremely serious one. So, please indulge me as I begin by providing some essential context to set the scene for my answer. Most nations get very upset around death and some celebrate life’s passing – to a better place? Who can know? What we do know is that approximately 52,800 people die every day and around 126,000 babies are born. So, the world population is still growing by over 1% per year and sits currently around 7.8 billion (that’s 15.6 billion hands you should no longer shake) so humanity is ‘live ‘n kicking’! Of those 7.8 billion there are 47 million (that is around 0.55% of the global population) lucky humanoids that have a net worth of $1,000,000 or more. You might be one of those 47 million. (We know some of you ?) If so, together, you lot control around 39.3% of the world’s wealth. If you are not one of that bunch then (because you are reading this) you, or your parents, are almost certain to be in the next group of extremely fortunate individuals – around 343 million people – who collectively control the next 32.3% of the world’s wealth. I know, I know, only an actuary could figure this out, but I’ll stand by my wild guess and suggest that you, dear reader, are part of the 5% who own 72% of all the lucre. (was that a smile or grimace?) Disclaimer: if any of my family are reading this, I’m one of the 95% sharing the remaining 28% ? If you are blessed with the privilege of being able to log into to your banking and investment accounts to bask in the reflected glow of large numbers, you are among the most fortunate of people who have ever lived. Just think, your birth was a one-in-many billion chance (the latest link in an unbroken chain stretching back for thousands of generations) and...
read moreChasing a Raging Bull
On 1st January 2017 approximately 128 feisty fund managers lined up to chase a Raging Bull, which only one would ‘catch’ on 31st December 2020. Their ‘racing vehicle’ of choice was the South African Multi-Asset Low Equity funds class. I think you’ll agree that there was no shortage of ‘excitement’ over a period that saw the end of Zuma-nomics and the rise of Trump-onomics! Then, if you look at a chart of the JSE All Share index over that time frame, you’d note that a straight-forward Index Fund would have left you feeling like time had halted. Since this is not intended to be a marathon story, I’ll just cut to the chase and announce that Financial Fitness Stable IP Fund of Funds was the winner! YES, during January 2020, we picked up the Raging Bull award for the Best South African Multi-Asset Low Equity Fund over Three Years! So, like any sweaty competitor, our post-race debrief goes like this: Always look forward; it’s the road ahead that must be navigated. Don’t watch your competitors; if they are behind you there’s not much you can learn from them. Read your map and compass while running; lost time and opportunities are not an option. Resist the temptation to follow an early leader, if your ‘map’ tells you not to. Run with the hearts and minds of your sponsors (investors) along with you all the way. So that’s it folks! Thank you for your faith in us over the most interesting of times. We are now chasing another ‘Bull’ to be captured on 31st December 2021. AND, I’m confident that we have your wholehearted support. Very best wishes, Jim Millar and the Financial Fitness ‘race’...
read moreA Most Wonderful Time of Year – The Giving Season!
Looking back on what has been a tumultuous year we have some good news to bring a little Holiday cheer – as you’ll see, we have silenced the Grinch! Thank you for your continued trust in allowing us to manage the portion of your money that is not under the bed. Choosing the best underlying-managers for our funds is a large job within itself and for this we do what’s referred to as ‘quants’ (looking at the numbers) then refining the data to find the best of breed. Having identified managers that excel in their particular discipline, it is imperative to ‘buy’ these skills at a preferential fee structure. This often translates in a saving of 0,4% to 0.7% on the Annual Management Fee for each fund manager we select for you. The result, as you may have guessed, becomes part of your excess (alpha) return on your investment. We have also never agreed with performance fees, as a successful fund manager will simply earn more money by growing the funds under management. So all of our ‘building block’ funds, within our Funds of Funds, are what is referred to as ‘clean price’ funds, with a flat management fee. You, as a private individual, would almost always pay the Retail Rate, which is the higher fee for a fund, if you were to invest directly. However, because of our ‘bulk buying power’ we are able to qualify for some of the lowest Institutional Rates and pass on the benefit to you. And there’s more! We also receive preferential administration rates from the various investment platforms so that we can bring you your Flexible Investment, Retirement Annuity, Preservation Fund or Living Annuity, on average, 0.3% cheaper than you would pay. In the simplest terms, this can put approximately 1% extra in your Money Boxes every year. Which may not sound enormous but, on a R1,000,000 investment over twenty years you would make an additional R221,301. In more realistic terms, if your investment was growing at 10% + 1% per annum, your R1,000,000 would grow to R8,935,015! In short, the more...
read moreBuying your first property
First time buyers need to be of essential details that should not be overlooked during the purchasing process; this is difficult as excitement and the associated freedom can override the logical thought process. Home ownership is essentially a commitment, a marriage between yourself and the property you are interested in and should not be taken lightly. When evaluating your affordability of the property is – assuming you do not have a car payment now – will you be able to afford a car payment at a future date when you purchase this property? First time buyers should gather relevant to ensure an informed decision is made, as well as being fully aware of your future long term plans. Some points to consider: 1. It is not just a matter of being able to afford a monthly repayment, you also need to assess whether this repayment is a high percentage of your income (I recommend that a bond should never exceed more than 25% of your income, this buffers in a safety mechanism should interest rates rise). You also need to place the less visible costs into your estimation of affordability, such as insurance, maintenance, and improvements. 2. Even if you can afford the monthly repayment, have you considered that the costs of purchasing a property can be as high as R50 000 on a R1 000 000 purchase? You also need to consider whether it is a buyer or sellers’ market? (Are the interest rates rising, is the economy growing or shrinking etc.). It may not be such a bad idea to hold back on purchasing until you have saved up a nice big deposit, of at least 20% in my view. 3. The adage “buy the worst house in the best area” is something to consider. Property location is an extremely important factor when buying, it does not matter how much money you throw at a property in a poor area to improve it, and it is likely you will still not make as much money as you should if you decide to sell your property later. Always...
read moreInvestment Portfolio’s – Blending Balanced Fund Managers
A financial Advisor has the responsibility of assisting clients in selecting investment portfolios for their various investment requirements; this is the responsibility to select the appropriate asset allocation for you based on targeted risk, returns and time horizon objectives and generally comes in the form of having to choose the right unit trust for your investment. I often come across clients’ portfolios whose solution is to hold multiple balanced funds as the underlying unit trusts, which I believe is an attempt by the advisor to ‘diversify’ the portfolio –this, in my opinion, is a quasi-approach to attempting to reduce risk and does not always work as the advisor intends. One of the biggest contributors to risk is the asset allocation of the portfolio (i.e. placing more money into volatiles assets if the time horizon is short); blending balanced fund managers may exacerbate this risk instead of reducing it. The reason for this is the discretion that the various managers may have to re-balance the underlying weightings towards various asset classes, let’s explore this idea further. Managers may, at various points through an investment or economic cycle, increase or decrease their holdings in, let’s say equity or bonds. This is alright if, on average, the fund manager’s combined in your portfolio hold opposite views on the market or hold different mandates as their changes in weightings will hopefully offset each other, by one manager increasing equity and the other decreasing the equity (or any of the other asset classes). The problem arises when the managers hold the same convictions to the asset classes and move in conjunction with each other (which is very common as most managers in a specific investment “space” may track the same benchmark or fall into the same peer group for ratings). Your portfolio may now be more aggressive or conservative than when you originally set the account up, which may not be ideal to your required solution – said otherwise, this means that you cannot control your asset allocation. Everyone understands the analogy “buy low and sell high), and without a structured asset allocation you...
read moreSA Markets in Review – September 2015
MARKET REVIEW… What happens in China does not stay in China… All I can say is thank goodness Q3 is behind us! In many ways the third quarter picked up many of the unresolved issues that we left behind in the Q2; that being an indecisive US Fed, a worrisome Chinese growth outlook and the impact of both on global growth, implicit or not, as well as picking up several new thorns (corporate scandals) which left risk assets battered and bruised. (The culmination of the 4 Cs = China, commodities, currencies and corporates). The MSCI South Africa index (measured in USD) was down 18.5%, similarly China lost 22.7%, Brazil -33.8%, Russia -14.4% and Turkey -19.5%. Developed markets fared only slightly better, however all losing ground. Volatility peaked in August, the VIX (volatility index) touching levels last seen in August 2011. From an asset allocation basis and In Rand terms, Income assets were the outright winners for the quarter – Global Bonds rallied 15.4%, Global Property rose 11.8% whilst SA Property rose 6.2%. Cash gave you 1.6%, the All Bond index managed +1.1% and Inflation-linked bonds +0.9%. Global equity returned 3.4% all thanks to Rand weakness, and worst performer being the JSE All Share which lost 2.1%. The Rand fell 12.1% against the USD over the quarter. The “fragile five” grew to the “troubled ten” = the major victims of yuan devaluation and vulnerability to China. Brazilian Real -21.4%, Russian Ruble -15.4%, Turkish Lira -11.4%. SA inflation eased from its July high of 5.0% to 4.6% in September. Data sourced from Bloombergs, total return calculated on Net Dividends reinvested Global Equity = MSCI AC World, Global Bonds = JPM GBI, Global Cash = JPM Cash, Global Property = MSCI World Real Estate Index SA EQUITIES – Weighed down by Resources After touching record highs in the second quarter, the volatile global sell-off of risk assets left the JSE down 2.1% for the third quarter, although somewhat buffered by the weak rand. SA was particularly weighed down by Resources which were hindered by concerns of a...
read moreYour portfolio and its risks
When you create an investment one of the first considerations is the topic of risk, which is usually stated as “I do not want to lose money”. This however presents a problem as capital risk is the risk of losing money on your initial investment amount, for example, if you invest R100 and it grows to R200 but subsequently loses 50% (R100) you will be back to R100 and will not have lost capital; you would not have made money at all but neither would you have lost any, or is this the case? A better adjustment would be to increase your initial capital value by a pre-determined rate or inflation annually; over time inflation will erode the amount of goods that your Rands can buy so earning a rate of return under inflation is also a version of capital loss. Secondly, when risk is referred to, what exactly is it that you as an investor should be concerned with? The aforementioned risk of capital loss certainly is a big concern however what about the risk of not outperforming inflation, not reaching the required growth rate used in the projections for your retirement calculations or the different risks faced when using active or passive (yes, who would of thought that risk was so extensive – daunting to say the least isn’t it?). Keeping risk in mind is important, especially if you are going to place a lump sum of money into the market or withdraw a lump sum out. The main concern in this situation is referred to as sequence risk, which basically means that there is a difference between losing money in the beginning or at the end of your investment term and getting a nice consistent average return. The problem is that losing money in the beginning of your investment means your investment now has to make back the money off of a smaller amount (this principle is thought of as Siegel’s paradox), this is one of the reasons why your advisor would either ask you to add more money after a correction or to re- balance...
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