After two years of exceptionally strong returns, this year’s market volatility means that most investments (except for the most defensive) are down year-to-date.
This is unsettling, we know, but it is important to remember that market declines are part and parcel of long-term investing. It is also worth noting that South African investors have been sheltered from the brunt of global market volatility.
Globally, inflation at rates not seen for four decades has forced central banks to remove the stimulus that propelled markets to record highs from the Covid-19 lows in 2020. This means higher interest rates, triggering volatility as markets try to digest what it means for asset prices.
South African investors have been relatively shielded from the full impact of the volatility, largely thanks to another key driver of global inflation, higher commodity prices, which have provided a windfall for the SA economy and the resource-heavy SA equity market.
Also, it is worth mentioning that those markets that benefited most from the global stimulus (ie not South Africa) have borne the brunt of this year’s selloff. Developed markets equities are down 17.7% in Rands, while SA equities, as proxied by the 10X Top 60 SA Equity Index, are down 4.6%.
Only very conservatively positioned portfolios have protected capital over the last 6 months, as seen with the 10X Defensive portfolio (0.7%). This will provide comfort to those nearing retirement who are invested in 10X’s glide-path, which aligns investments to the investing time horizon, a factor that is so important to successful investing.
As a word of warning, consider the Global Financial Crisis in 2008, when the local stock market fell by almost 50%. At the time, many investors abandoned equities or switched into a low risk (low equity) portfolio, believing this was the ‘safer’ investment strategy. Such knee-jerk reactions left these investors kicking themselves because they locked in their losses and missed out on the strong returns in the following nine years, when the stock market more than tripled in value.
Ensuring that your investments are well diversified across many asset classes and geographies, as is the 10X High Equity portfolio, is key to navigating volatility. The various assets will react differently during these times, limiting the impact of any one outcome. This will, in turn, help investors stay invested through short-term volatility.
With levels of uncertainty expected to remain high, the best approach is to focus on those areas that you have control over, including remaining well diversified, having the correct asset allocation for your time horizon and keeping your fees as low as possible. Most importantly, now is not the time to panic.
We will be providing a much more comprehensive update on the last six months in our first half review webinar at the end of this month. The date of the webinar will be communicated soon.
Written by: Tobie van Heerden, CEO of 10X Investments
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The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250)