A closer look at the past 15 years: a challenging period for SA investors

Over the past 15 years, SA (and the global economy) has faced several headwinds: the most significant two being the 2008 global financial crisis, and the pandemic and ensuing global recession. SA investors also had to contend with a strong dollar, placing enormous strain on emerging market currencies, investments and markets. Not to mention all the challenges the SA economy had to navigate, which led to weak business and consumer confidence.

Despite this, equity markets returned just over 12% (as represented by the all share index (Alsi), shown in the graph below. This is in line with our forecast for the period: returning inflation plus 6.70% for the asset class. This explains why longterm investing is essential, but also that the assumption remains realistic.

So, despite the recent extreme volatility due to the Covid-19 pandemic, investors who have remained invested continue to reap returns from equities as we initially planned.

No investment will ever be without adverse macroeconomic or market events.

However, they hardly matter at the end of a long-term investment horizon. Research has found that though past market corrections have been painful, the subsequent expansions have been powerful.

According to the Capital Group, recessions in the US have, on average, lasted 11 months since the 1950s, while the average expansion has lasted about 67 months. In fact, these pullbacks have proven to be golden opportunities for investors.

So, if tough economic conditions, multiple recessions and market shocks are not the real enemies of creating long-term wealth, what are the real enemies?

The deadliest silent killer of wealth creation by far is the retirement income shortfall crisis, inflation and acting on emotion.

How to beat these threats?

Firstly, ensure that your asset allocation mix can deliver inflation-beating returns. With cash rates on a sharp decline this year, it once again highlights the importance of exposing a portfolio to some growth assets. Without this kind of exposure, you risk generating negative real returns.

Secondly, save as much as you can, as often as you can. An asset allocation mix cannot do all the work. Though market growth is essential, being disciplined enough to make regular contributions to your investment plan is what sets successful investors apart.

Lastly, if you have a plan, and it is set to meet your long-term goals, exercise some patience and leave the plan to do its work. Remember, a plan is only as good as its execution. Don’t let market turbulence allow you to be overwhelmed by fear. The best solution to combat these threats to wealth creation and enjoy the rewards of financial freedom is to have a trusted investment partner by your side.

For more information, visit www.psg.co.za.

PSG Multi-Management (Pty) Ltd FSP 44306.

This article was paid for by PSG Wealth.