Media-savvy pundits love manipulating unsuspecting investors through columns or interviews that play on our emotions — especially those emotions that have the worst effect on investment decisions.
The current trend is to play on our fears by pointing out all SA’s problems and the pitfalls that can derail our country further. Unscrupulous operators will then compare the historical five-year performance of the stock market with the performance of cash in SA or international shares and use it to convince us to allocate even more money to past “winners” to alleviate the fear they’ve created.
In addition, they appeal to our greed as we see the returns we might have earned.
This financial garbage is hugely damaging to investors and self-serving to the pundits as they drive an agenda that suits them: for you to invest in their products. They have only one agenda, their own financial wellbeing. If you follow their “opinions” blindly, you are at risk of losing money in the decades ahead.
Offshore vs local
I believe it is irresponsible to recommend that all South Africans who plan to live in SA (and therefore spend in rand) should invest their money only in local cash and offshore investments, and therefore avoid local shares, property and bonds. Avoiding all assets that lost money over the past two to five years is possibly the worst thing that you could do.
The longer an entire group of investments underperforms, the greater the chance that they will outperform in future. Anyone who has studied investment markets would know this. Therefore, we need to question the motives of people or companies that propose options that are counter to this common sense.
All SA investors should have a portion of their assets invested offshore, the amount allocated overseas should be a function of your wealth, risk tolerance, spending objectives and views on the future of SA. If you are going to retire with just enough money in SA, you should consider allocating 25% of your investments offshore. Those who might leave money to their children could increase their offshore allocation to 50%. Very wealthy families could increase their allocation to 75% invested overseas.
Investors need local assets to generate income to pay local monthly expenses. It is not sensible to rely on offshore capital to fund monthly expenses, as currency volatility could cut your income 10% within days when the rand strengthens. This is especially critical when you have limited capital and therefore cannot simply draw more money when the rand strengthens.
Some people focus on the recent poor performance of the JSE to justify their view that you should avoid the local stock market completely. Consider the logic behind this suggestion: you are told to sell cheap assets (the JSE) so that you can convert your rands into dollars at a time when you will get very few dollars for your rands.
Then you are told to invest in international shares at a time when the US stock market is expensive. This is not rational. The local stock market will reward patient investors as local companies are offering good value to investors now. It is ultimately this value that will determine long-term returns, not the views of some salespeople punting their offshore products.
It is important to remember that the local stock market is not a reflection of the SA economy. More than 50% of the JSE has almost nothing to do with the SA economy. For example, companies like Richemont, BAT, BHP and Naspers earn very little from SA in comparison to their total income.
When markets, economies and politicians are behaving badly, it is important to use common sense and invest as rationally as possible. Ignore those who sell fear as an investment strategy. They are trying to manipulate you for their own benefit.
Sadly, that includes writers like me. All of us have innate biases that could cloud our views, but you should always be most wary of the product pushers.
• Warren Ingram is a wealth manager at Galileo Capital. Twitter: @warreningram..