In­vest­ment

Finweek English Edition - - MONEY -

One of my clients pre­sented me with an ad­vert for “South Africa’s Randi­est Hedge”, which was car­ried in the Sun­day Times on 13 March this year. It is an ad­vert for gold coins and goes on to pro­claim the virtues of in­vest­ing in gold, es­pe­cially if one is “feel­ing switched off by cur­rent fi­nan­cial of­fer­ings”. The ba­sis of the ad­vert is the fan­tas­tic re­turn of 1550% over the past 20 years (1992 to 2012). Who would not be in­ter­ested in some­thing like that?

1550% over 20 years sounds in­cred­i­ble, un­til you do t h e mat h s . It equates to a com­pound an­nua l ret urn of 13.8%. How­ever, for the first 10 years at least, the re­turn was close to 0% per an­num. It is only in the past 10 years that the “Randi­est hedge” has really per­formed and dur­ing this pe­riod, the re­turn has been around 25% per an­num. Not bad in­deed (so long as you did not bail dur­ing the first 10 years and miss the past 10).

What about the claim about be­ing South Africa’s Randi­est Hedge, is there any­thing else that has done as well over the pe­riod? A quick look at the Alsi shows that it re­turned 17.02% per an­num over the same 20-year pe­riod. If you had in­vested in the Alsi, then your fi­nal value would have been 2937% higher. There are few eq­uity unit trusts that have been around that long, but the best fund over that pe­riod is the In­vestec Eq­uity Fund, which de­liv­ered 18.48% per an­num. If you had in­vested in that fund over the 20-year pe­riod, then the f inal value would have been 3917% ‒ much more than dou­ble that of the “Randi­est hedge”. In fact, 11 of the 12 eq­uity unit trusts that have been around that long would have de­liv­ered bet­ter re­turns t han t he gold coin in­vest­ment over the 20-year pe­riod. For the record, the es­ti­mated CPI over the s a me t i me was around 6.4% ‒ so they have all com­fort­ably out­per­formed this fig­ure.

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