Creating wealth in an uncertain world

Trump, Brexit, slow growth in China, the threat of a downgrade by ratings agencies – 2016 was a rough year for investment managers and investors. These developments resulted in lackluster portfolio returns and left investors with a sense of unease about the future. Last year saw great political, economic and market noise that delivered poor investment returns.

• The all-share index returned 2.6% during 2016, down from an average return of 13% per annum over the past 5 years.
• Listed property recorded a return of 10.2%, well below the average return of 17.3% per annum over the past 5 years.
• The bond market was the best performing asset class, with a return of 15.4% during 2016. However, few asset managers capitalised on these returns as they held short-dated instruments given the high levels of market uncertainty.
• The money market delivered a return of 7.4%, marginally beating inflation.
• The global equity market returned 8.1%, while global bonds and cash returned close to 0% in US dollar terms.
• The rand strengthened by 11.5% against the US dollar, 14% against the euro and 26% against the pound, therefore offshore investments delivered negative returns in rand terms during 2016.

It’s no surprise then that most local investors were either treading water or saw their wealth decline in real terms as their portfolios were not able to beat inflation.

The average unit trust achieved a return of between 1.5% and 2.5%, while the average offshore balanced portfolio delivered a return of around -7.5% for the year. The main sources of capital growth (equities, listed property and offshore assets) delivered the worst returns, meaning that investors were not compensated for taking investment risks.

Putting 2016 behind us

Looking ahead into 2017, the unknown outcomes of developments relating to Brexit, political elections in Europe, the start of the Trump era, the ANC leadership elections and the low-hanging credit rating cloud will create continued investor nervousness. But what does this mean for investors that are saving for retirement or other medium- to long-term goals?

It’s important to not let emotional decision-making guide one’s long-term investment strategy. Investors should still be able to achieve investment success and grow their wealth if they stick to certain principles:

• Be clear about the investment objective. This objective should be specific, measurable, achievable/ realistic and have an end goal/ target.
• Have a timeframe or investment horizon in years over which the objective needs to be achieved.
• Determine the most appropriate investment strategy in terms of what combination of asset classes to invest in.
• Select the most appropriate investment platforms, products and asset managers through which the investments can be made.
• Review the original objectives, timeframe, the appropriateness of the current investment and the implemented solution on an ongoing basis.