Junk proof your assets

07 July 2017

In the latest knock to the country’s economy, Moody’s Investors Service downgraded South Africa from Baa2 to Baa3 (this is the same as BBB-, as used by S&P and Fitch), one notch above junk, and held its negative outlook. This could mean a further downgrade in December. To the average South African, this is just another blow to their personal finances. However, there is a sliver of a silver lining – a brief window of opportunity – to prepare ahead for any further downgrades should there be another downgrade.

It goes without saying that the first thing you can do, is clear any debt and cut down unnecessary expenses, but now is also the time to consider how you can protect the money that you do have. We sat down with Craig Pheiffer, Head of Private Client Asset Management at Absa, to find out what you can do now to prepare yourself for the future.

Pheiffer is quick to point out the importance of taking your savings to the next level and investing to safeguard your financial future. “Inflation does eat away at the value your nest egg,” he says, “You need to save and invest your money smartly to grow it.”

Tax-free investments

First-time investors should start with a tax-free investment account to take advantage of the annual allowance of R33 000. These investments will also grow faster as you are not paying tax on your investment return.

Start or grow your investment portfolio with an opening deposit of R10 000 in a range of funds that meet your risk appetite.

Choose how you invest and trade in approved ETFs for both local and offshore exposure with no minimum amount.

Investment strategy

Pheiffer advises on ignoring short-term fluctuations in an unstable economy and focusing on the bigger picture and your long-term goals. Your investment strategy should include diversified growth assets that, as it says on the box, are designed to grow your investments. While they do carry higher levels of risk, there is the potential for higher returns over this longer investment time. Build up a portfolio that includes a mix of equities, bonds, as well as cash and fixed interest investments. But speak to your financial advisor to get the right mix and plan for your needs and risk profile.

Rand hedge shares

Around two-thirds of the value of the JSE is in rand hedge shares. These are locally-listed companies with off-shore operations or the prices of their goods and/or services are set in international currencies, such as the US dollar. This means that their revenue is in non-rand currencies and usually performs well even when the rand weakens.

Offshore investments

While South Africa has hit another recession, the global economy is growing. This means that offshore investments are an attractive means to grow your own wealth – not only the purview of the rich or dodgy. A foreign currency account allows you to save in USD, GBP and/or EUR, while keeping your money accessible and in South Africa.

And, although managed off-shore options do have a high barrier of entry (R1 million), the World Trader is a trade of the art platform giving you access to over 29 exchanges worldwide. If you’re ready to try the DIY route, you can find a ‘how-to’ guide to investment here. There are also unit trusts available that will provide you with offshore diversification.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.