PSG Wealth Outeniqua - George Central and Mossel Bay Diaz

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BUSINESS NEWS - In our profession, one of the questions we hear many times and are often confronted with is: The world is so much more confused now than in the past and changing at a pace that everyone is struggling to keep up with.

How should you invest capital now and can you make sensible investments in such a confused global landscape?

When we look at geopolitical influence in the world right now and how technology's role has a very big impact on society, you must look very carefully at how you navigate through these circumstances to make sure you reach your investment goals.

To use a few events in just the last five years as examples: The Covid-19 Pandemic in 2020 that made many think the world is going to look permanently different after that, the war between Russia and Ukraine, the formation of the Government of National Unity in South Africa and more recently, the ongoing conflict in Iran.

And we see a “new” world with all the technological advances and the rise of artificial intelligence. Can you still then invest capital in a way that ensures you get the necessary growth and protection over the long term future?

This is why we believe preparation is much more important than forecasting, and the simple reason is that the future is uncertain. With predictions, one inherently tries to determine and control certain outcomes by trying to predict what is going to happen.

But preparation builds flexibility, tools and resources that improves the portfolios ability to remain resilient across a range of possible future scenarios and increase the probability of achieving the investor’s objectives.

Furthermore, the right type of planning naturally reduces the panic factor in investments by allowing logical and calm decisions to be made in times where pressure is experienced.

In the preparation process we look at historical returns in different asset classes and sectors in the world, but we also assess where we stand right now with among others, economic growth prospects locally and abroad, company and equity valuations and interest rate levels. Planning and preparation is not a one-time process when it comes to investments.

Constant changes globally, with economic impacts should be monitored in your decisions going forward.

To have an active approach where you continuously look at opportunities and risks, to determine whether your investment model needs to be adjusted, is a key factor in our approach when it comes to managing our client’s capital.

One good example of this active approach is portfolio rebalancing. When certain assets classes perform strongly, their weighting in a portfolio can increase beyond the intended allocation.

In these circumstances, some of the assets that have increased in value may be sold and the proceeds allocated to other asset classes to bring the portfolio back towards its desired allocation. This helps maintain the intended level of diversification and risk over time.

The SA market has delivered relatively good returns over the last 24 months. This is despite economic growth that was still very low in the country, which illustrates that economic growth in a specific country is not directly linked to market performance.

This illustrates that equity-market performance and domestic economic growth are not directly correlated.

This then further brings the planning aspect into portfolios of asset classes and specifically allocation of capital to specific asset classes. Diversification between asset classes remains one of our key strategies for managing and preserving capital over time.

For the purpose of this discussion we consider four major traditional asset classes with illustrative long-term real return assumptions:

Cash – Expected long term real returns of 1 to 2%
Bonds - Expected long term real returns of 1 to 2%
Shares - Expected long term real returns of 6 to 7%
Property - Expected long term real returns of 6 to 7%

Further diversification between different market sectors such as the technology, energy and resources, as well as property and the financial sector is part of risk mitigation. Appropriate diversification between sectors and parts of the world where you are invested is very important to achieve your particular investment objective with limited risk.

Our team specialise in investment and financial planning, providing a holistic approach to a client’s needs and goals.