“Your pest client again! I was listening to an economist talking on the radio yesterday & he said we were not just in a recession but we are in a depression & it might take 10 years to come out of this. What if:
What would it cost if I sold everything in my portfolio.
Put it all into the money market.
What are the Tax implications every year.
When it came up to the level I am at now we buy everything back again & what would that cost.
Just a thought. I can just see you pulling your hair out …… saying oh X, X…I was thinking say I lost R300 000 doing the above as apposed to maybe losing R500 000 or maybe even R1 000 000.”
And then my reply…
You are not a pest – far from it…
I am going to try and answer your question with the points below – if you are still not happy then we can get into more details.
Below is a graph of the Gryphon All Share tracker fund – it pretty much is a proxy for the whole of the JSE (and for other markets as well, as you should see).
The graph is from the 4 March (pretty much when markets started their serious downturn) until 19th April…and my points are as follows:
It is incredibly easy to get out of the market – you just move everything to cash – you would have lost 21% in doing this (that’s how much it fell) and I use the word “lost” very deliberately because you would have realised the fall by selling and as a result, the loss will be real.
With the benefit of hindsight, let’s imagine that you managed to get out around the 16th March (close to the bottom) and that you moved to the money market (safety)
The plan is to go back into the market at some stage in the future…
While you are in the money market funds you would now be earning a taxable return of ±5-5.5% pa – that’s all
However, since the bottom, the market has now moved up ±22% (it still has some way to go to where it was) but you have now missed that 22%…this is on top of the 21% loss you realised.
So you continue to wait…and…one or more of the following happens.
The market could continue to go up – and you still wait
The market could fall a bit, but not all the way back down to where you sold – and so you wait
The market could fall a lot, past where you got out, and so you wait because it might still fall further
Then the market goes up a bit – close to where you got out, but you are not sure where it is going next so you wait, perhaps it might fall further…
But then the market goes up even further and now you have missed getting back in again and now you are upset about your losses and you hope the market will fall again and so you wait some more
And this could go on for months or years and you would still be sitting in cash – or like many investors, you capitulate and go in at higher prices than when you got out…
And if you think this whole scenario does not happen, look at the 2nd graph below which is the same fund but from just before the 2008 crash where the market fell around 45%…and then it recovered more than 300% over the next 6 years – there are some people who are still sitting in cash…they missed all of it.
I think that the final points are as follows:
Investing takes time
There are going to be times where things get really volatile but that’s the price you pay for long term inflation beating returns
If we bring this back to your portfolio and use the same dates as the first graph above…and we take the N Fund which is kind of a proxy for global markets then the fund was at $85973 on 16 March – it moved back up to $94232 on the 17 April – that’s just under 10% growth over that period…at the same time, the offshore money market fund gave you a return of 0%…I know that this is a really short period but it illustrates my points above
So, if you want to move to cash, I will help you do that, but I can’t tell you when the right time to get back into the market will be (no one can) and my advice would be to stay where you are – your funds are well diversified and you have enough cash (local and offshore). When you sell your property, we can review what we do with that money.
Hope this is helpful – let me know if you would like to chat on the phone
Much has been written and much will still be written about the Steinhoff saga but after listening to some of the testimony and reading the bit below…there is only one conclusion that can be made and that is this: Ethics aside, Marcus Jooste’s biggest mistake was failure to diversify. It’s a classic school-boy error of over-confidence. We have seen it before with the collapse of Lehman Brothers where employees had their entire life savings invested in just one share and we will see it again in the future.
If there is a financial planning lesson here it is this: diversification is essential to a successful long-term investment strategy. Even if you are the CEO of a huge company you should not have all your money invested in just your company share. You need to diversify and this means holding a wide-range of different asset classes and currencies. Failure to diversify will ultimately result in failure to accumulate wealth!
“Jooste family trust held R3bn in Steinhoff shares on day of fallout
On the day of the Steinhoff share price fallout, Jooste’s family trust which has an investment company Mayfair, lost R3bn. The company held 68 million Steinhoff shares.”
I recently watched someone using a leaf blower to clear their pavement. As I watched, it struck me what a pointless exercise it was and it crossed my mind that the leaf blower must be one of the most senseless machines yet invented. Continue reading It’s time to do the Mickey Blue (again)→
Today I got a call from a journalist asking a few questions about what a beginner investor should do if they want to start investing. I think that they were looking for “tips and tricks” about which funds or shares to choose. Here was my reply. Continue reading The ultimate savings & investment vehicle!→
I have just finished reading this excellent book by Carl Richards…
The One-page Financial Plan – some notes from the book:
“The best financial plan has nothing to do with what the markets are doing, nothing to do with what your real estate agent is telling you, nothing to do with the hot stock your brother-in-law told you about. It has everything to do with what’s most important to you.” p7
• know why you are planning
• time spent + money spent = what you really value.
• it’s about making best guesses (and not obsessing about getting things exactly right) – a lot can happen between now and the future!
• It’s about giving yourself more time!
• Things you have to invest: money, time, energy and skills – all NB to consider
• Most people don’t have a clear understanding of their current financial situation. Budgeting = awareness
• budgeting & flossing: both insanely important, super simple, & for many of us, nonstarters
• save as much as you can
• spend less than you earn
• don’t lose money
• life insurance plays 1 role: it covers economic loss. It is an expense, not an investment…it’s about the risks you are ok with and the risks you’d like someone else to take care of. Economic need, not emotional loss.
• Paying off debt = investment with guaranteed return
• Speculation and intuition are not investment strategies
• Invest and then behave for a really long time
It may be mid-Winter and it may be cold but there is a lot of heat being generated by all the media coverage the Malema is currently getting. Not sure whose agenda it is serving but someone is surely behind it all. In the light of this, there was an excellent interview with Professor Steven Friedman on 567 Cape Talk last night:
“Professor Steven Friedman says while much of the public debate portrays Julius Malema as an immensely powerful figure, all the evidence suggests that he largely does what he is told by senior politicians – and, perhaps, business people in the ANC who may also help him to afford his lifestyle. “Whether Zuma is challenged for the ANC presidency next year will be decided by senior figures who will convey their decision to the league.” Friedman says this may be the most over-cooked story in South African history, and it’s not analysis or commentary it’s hysteria on the part of journalists and political analysts.”
And just before you sound off about him being naive or that he has blinkers on, pause for a second to consider just how emotional and irrational our behaviour as humans often is.
“Did you know that in the aftermath of the Japanese earthquake and subsequent tsunami in March of this year, another event passed largely unnoticed in the western world. It was a mania of epic proportions, yet only lasted a week or two. The Chinese public, in the mistaken belief that eating iodised salt would help to prevent radiation sickness, bought up large quantities of such salt. This together with speculative entrepreneurs buying tons of salt, drove the price up by at least 900% within a matter of days. It took repeated statements from authorities before calm was restored, despite the fact that Beijing is almost 3000km away from the Fukushima nuclear accident. But at the height of the mania, the public even took to buying stocks of soy sauce as a salt replacement.”
Thanks to Atlantic Asset Management for the bit above about the Salt Bubble of 2011
If you are looking for income from your cash then the RSA Retail Bond (2 year fixed-rate option) is still offering 8% – that’s about the best “guaranteed” option available. But that rate is likely to fall by about 0.5% at the beginning of December (the repo rate was cut by 0.5% to 5.5% last week).
To qualify for the 8% rate you need to have invested the money with them before the end of November, so you still have about 1 week to go.
On an amount of R500000, the difference between 8% and 7.5% is about R208 per month…that’s about 13 cappuccinos or about 26 litres of petrol…worth getting a move on in my opinion.
I don’t think I would go for the 3 year option at this stage…it is quite a long time and rates are likely to start increasing again sometime in the not too distant future. With the 2 year option, you at least have the option to increase (re-start) your bond after 1 year…so if rates have increased in the next year you can participate in that increase. I guess the only risk with the 2 year option is that rates fall a bit more in the next 2 years and are still lower by the time you need to re-invest your bond but looking at all the yield curves this looks highly unlikely.
Thanks to Atlantic Asset Management for the help on forward rates.
Got an email from friend this week which went something like this…”Just got a mail from Nedbank to say I have 300 000 odd ‘Greenbacks’, their loyalty programme. I can exchange them for until trust investments. Wanted to know your opinion? I’ll have to put R5000 cash to open an account but can get around R11 000 or so more through the Greenbacks I got sitting in an account.”
What a great idea…I knew you could get shopping vouchers but had no idea you could get unit trusts as well, so I did a bit of research.
It turns out that through the “Greenbacks” scheme you can in fact exchange the rewards for unit trusts. The question is, would I rather have unit trusts or vouchers for Cavendish Square? And this is where Nedbank have been “clever”.
If you convert the Greenbacks to shopping vouchers you will get R100 for each 3500 Greenbacks – so for my friend, this would mean about R8500 worth of vouchers (a lot of retail therapy indeed). If, however, you invest in their unit trusts they will give you R100 for each 2800 Greenbacks – so he would get about R10700 which could be invested. He would be better off by R2200 by investing in the unit trusts – and it will be done at no initial fees – so it becomes very attractive indeed.
So would I do it? Absolutely! If I had Greenbacks “lying around” that I had accumulated through using my credit card with no “need” for vouchers then I think that this is a very attractive option indeed.
Taken from their website… Invest in unit trusts.
2 800 Greenbacks = R100 contribution
Invest in a Nedbank unit trust of your choice and pay 0% initial fee on your invested amount (save up to 5%)
Minimum contribution of R5 000 to open a new unit trust account.
Contribute in multiples of R100 (2 800 Greenbacks).
A minimum of 140,000 Greenbacks points is required to invest in unit trusts.
And I guess if he really needed the cash, he could put the money into the Money market fund and redeem it shortly thereafter (but I am sure that is against the spirit of this and that there could well be some fine print somewhere to limit this).
I enjoy using lines from movies when talking to clients about investing and financial planning. For example there is the classic line by Jack Nicolson’s character from “A few good men” when he is on the witness stand and being asked about the truth of an investigation to which he replies…”You want the truth? You cant handle the truth”. Sadly we get to use this when telling clients the truth about being able to retire or about their budgetting and the reasons that they are always in debt.
But one of my favourite lines that we often get to use is from the movie “Mickey Blue Eyes” which stars Hugh Grant as the boyfriend whose prospective father-in-law is a gangster boss. Hugh Grant’s character is very proper and speaks with a real hot potato in his mouth. The father wants to introduce him to his gangster friends but cant have him speak with that accent and so he tries to teach him to speak like a mobster…about the only thing he gets right is the line “forget about it” which sounds more like “fur ged abowd did”…and so it is with investments – clients need to learn to do the Mickey Blue Eyes and “forget about it”.
We’ve recently had a few calls from clients about their investment values – this is largely a function of quarterly or half-yearly statements just having gone out combined with the current volatility that is being experienced. Research shows that the more often you look at your investments, the less likely you are to stick to your long term plan/goals as it becomes too easy to focus on the short term volatility.
Unfortunately legislation requires that companies report frequently (how that happened is the subject of another post) and as a result clients are getting statements too often (in my opinion). Combine this with the ability to access the values online and the absolute glut of information by so-called experts it becomes too easy for investors to be distracted from their plans and to make decisions based on the short-term “noise”.
I am not advocating a reckless negligence of your finances but I recommending that if you are an investor (that implies that you are in it for the long haul) and you have an investment plan/strategy in place then you need to learn to do the “Micky Blue Eyes” with your investments and “fur ged abowd did”. Give them time and they will come right!