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Analysing long-term data is crucial to our investment process and it also teaches us some profound lessons.
Understanding these lessons will help you build the right investment solution to achieve your goals.
Many investors suffer from “inflation illusion”
as they don’t notice how destructive inflation
can be over time (see INFLATION research on page 17).
We need to look at long-term investment returns in
“real” terms, stripping out the impact of inflation.
Take a look at what a 6% inflation rate effectively does
to your money.
The main reason investors prefer cash to equities is the
fear of losing money.
The best way to manage the risk of losing money is
to remain invested in equities for longer. As soon as
you extend your holding period for more than three
years, SA equity past performance shows that the
chance of losing money becomes negligible. Take
what happened in 2008: after a negative 30% return,
the market rebounded to deliver 14% a year over the
following five years (see Chart 13).
1 day and 1 week: Rolling total returns for SA equity, June 1995 – December 2018
1 month to 10 years: Rolling returns for SA equity, January 1960 – December 2018
The old ADAGE holds true
Many investors will not retire with enough money.
We need the higher long-term returns from equities to
grow our wealth. This is particularly important in a world
where people are living longer.
A bank deposit exposes you to minimal risk, but there’s
a price to be paid for that security
Cash does not significantly increase your real wealth
over time. Over 94 years, cash has an after-inflation
return of just 1% a year. It is better to own shares in
the bank than to leave your money there.
Using each asset class’s long-term average returns, this is how long it will take to double your REAL investment value
Money needs time to benefit from the full potential of
Start saving as soon as you can, leave it for as long as you
can, and let compounding do the work for you. And tick the
dividend reinvest box on your investment application form to
maximise your growth.
Using the long-term nominal average return of 13.8%
a year, look at what happens when a lump sum is
invested in SA equities over time
Short-term volatility can often lead to investors selling their investments at the worst time – as almost all of the 10 best
days on the JSE occurred after bad news or during uncertain times.
Sitting on the sidelines and missing those good days can be detrimental to your savings. The only thing you can control
is to have a well-considered plan and to stick to that plan. It is the best way of ensuring you have a secure retirement
The performance of R100 invested in the FTSE/JSE All Share Index (June 1997 to December 2018)
Equities may have been the best performing asset class
since 1929, but cash was the best performer for 11 of
those 89 years and listed property for 9 years…
Diversification is the one free lunch in investments; use
it. That is because it pays to invest across different asset
classes. The analysis of drawdowns on page 13 shows the
benefit of blending different asset classes, while on
page 15 you can see the consistent, above-average
returns of the diversified MacroSolutions Balanced Index
over time relative to other individual asset classes
Asset classes have distinct secular or long-term periods of
under- and outperformance.
Active asset allocation is a vital tool in delivering superior
We incorporate these lessons into the way we build our solutions:
These principles also form the basis of Old Mutual Wealth's investment philosophy, enabling them to deliver to client objectives.
Old Mutual Investment Group provides leading investment and saving solutions and is an authorised financial services provider
Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405, South Africa
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