IN­VEST LONG TERM OR NOT AT ALL

CityPress - - Business & Tenders - DAVID VAN ROOYEN careers@city­press.co.za

South Africans who have been in­vest­ing over fiveor 10-year pe­ri­ods since 1995 have rarely lost their money, ac­cord­ing to an anal­y­sis of in­vest­ment yields con­ducted by Old Mu­tual In­vest­ment Group’s Macro-So­lu­tions di­vi­sion to de­ter­mine what risks South African in­vestors face.

The in­for­ma­tion is con­tained in the re­cently re­leased edi­tion of the yearly pub­li­ca­tion Long-Term Per­spec­tive.

The re­search was con­ducted to de­ter­mine what the chances were that in­vestors will ex­pe­ri­ence neg­a­tive yields if they in­vest over cer­tain pe­ri­ods of time be­cause, with in­vest­ments, it’s not guar­an­teed that in­vestors will ex­pe­ri­ence pos­i­tive yields.

The anal­y­sis makes it clear that, as the risk of a neg­a­tive yield in­creases, the shorter that pe­riod of in­vest­ment be­comes.

The longer the term of the in­vest­ment, the lower the chances are that there will be a neg­a­tive yield, and, given the yields over the past 22 years, there is al­most no chance of a neg­a­tive yield over a pe­riod of five or 10 years.

In con­trast, there is a 38% chance of a neg­a­tive yield over a pe­riod of a month, 30% over a quar­ter, 20% over a year and 3% over three years.

Ac­cord­ing to MacroSo­lu­tions, this is why it’s so im­por­tant to take a long-term view when it comes to in­vest­ments.

The ac­com­pa­ny­ing ta­ble shows that in­vestors some­times ex­pe­ri­ence neg­a­tive yields over a pe­riod of a year, but, over longer pe­ri­ods, the yield was al­most al­ways pos­i­tive and, in many cases, at­trac­tive, even when in­fla­tion is taken into ac­count.

In this re­gard, an in­vest­ment in shares last year and in 2015 would have de­liv­ered neg­a­tive real yields (in­fla­tion taken into ac­count), but in­vestors will still see stead­ier pos­i­tive real yields over longer pe­ri­ods of time. An in­vest­ment in shares over a pe­riod of five years still de­liv­ered a yield, in real terms, of 6.9% a year, 3.9% over 10 years and 7.1% over 20 years.

In nom­i­nal terms, shares earned 13% a year over five years, 10.5% over 10 years and 13.9% over 20 years. Some as­set classes are more er­ratic than oth­ers, but it usu­ally turns out that, where a class has a neg­a­tive yield in a par­tic­u­lar year, it will re­cover the fol­low­ing year. This em­pha­sises the need for in­vestors to have a long-term out­look.

For ex­am­ple, South African stocks achieved neg­a­tive yields in 2013 and 2015, but, in both cases, re­cov­ered well the fol­low­ing year and, over a fiveyear pe­riod or longer, still de­liv­ered real yields.

The same goes for gold, which, in 2013, showed neg­a­tive nom­i­nal and real yields, but per­formed well over the fol­low­ing two years.

It’s also clear from the ta­ble how much weaker the real yield on cash is when com­pared with other as­set classes. Over the past five years, cash earned just 0.9% a year in real terms, while shares beat in­fla­tion by 6.9%, prop­erty by 11% and in­ter­na­tional shares by 16.8%.

The longer in­vestors sat with cash, the less they would be able to achieve fi­nan­cial in­de­pen­dence.

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