Archive for April, 2017

Philanthropic Investment: people and the planet

Developments in science, environmental concerns and the rise of social media have created greater awareness of human activity and the ensuing damages we effect around the world. Along with this greater understanding, comes a more responsible investor who takes specific interest in how investments may be used for the benefit of the planet.

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Will you outlive your retirement capital?

Solving the Retirement Riddle

For many years investors have enjoyed the benefits of local investment markets which have delivered returns far in excess of more conservative and ‘normalised’ financial planning budgets. Money market – the lowest risk asset class – has beaten inflation by 4% per year, for 25 years! Local equities have delivered almost 9% in excess of inflation, property more than 12%! Which makes the more recent market returns somewhat sobering: negative real returns in 2016 for the average balanced fund, and only inflation matching returns for the past three years.

For investors in retirement these lower returns have started to cause real concern: will their retirement capital be sufficient to last their lifetime?

The boom years made it relatively easy to sustain higher lifestyles and levels of drawings from portfolios, typically out of a living annuity (where the investor takes the risk on the longevity of their capital). High returns hid the fact that the majority of retirees were under saved, overdrawing, or both. As it stands the average living annuity drawing rate in SA is about 6.5% per year, in excess of the recommended guidelines.

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Counting the cost of the cabinet reshuffle and credit rating downgrade on local investment returns

Investors will be concerned over the recent news of the ‘authoritarian’ cabinet reshuffle and consequent credit rating downgrade from S&P on the 3rd of April. This has important implications for all asset classes, and therefore prospective investor returns. This comment aims to provide some insight for investors to help understand how it will affect their investments.

What has happened thus far:

  • A major reshuffle in cabinet ministers seen as a destabilising move by the government. Primarily this drives uncertainty on economic policy, and the stability of state institutions (e.g. Eskom). Increased uncertainty increases the risk attached to South African linked investments, typically resulting in a fall in prices (and therefore returns).
  • The currency as well as government bonds and local dependent shares (like banks) have sold off to reflect worsening prospects. This impacts most investors.

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