When is the best time to plant a tree?

The Jewish Chronicle - - FEATURES - BY DEON GOUWS

IN THE first few weeks of 2016, world fi­nan­cial mar­kets ex­pe­ri­enced their worst start to a cal­en­dar year since records be­gan. To il­lus­trate, the MSCI World In­dex (a broad global eq­uity bench­mark rep­re­sent­ing share-price per­for­mance across the largest de­vel­oped mar­kets) lost as much as 10 per cent (mea­sured in pounds) be­tween Jan­uary 1 and Fe­bru­ary 11,2016.

What a dif­fer­ence a year makes.Over the cor­re­spond­ing pe­riod at the be­gin­ning of 2017, the per­for­mance of global eq­ui­ties could hardly have been more dif­fer­ent, with mar­kets hav­ing gained 2.4 per cent in the first six weeks of this year.

It would be fair to ask why eq­uity re­turns have been so much bet­ter this year, com­pared to 12 months ago.

Even though com­men­ta­tors will pos­tu­late any num­ber of rea­sons, re­lat­ing to eco­nomic growth, the out­look for in­ter­est rates, per­ceived op­ti­mism re­lated to the pres­i­dency of Don­ald Trump and the like, the real causes are a mul­ti­tude of in­ter-re­lated fac­tors and self-cor­rect­ing mech­a­nisms at work within the world of investments.

The bot­tom line is that fi­nan­cial mar­kets are no­to­ri­ously dif­fi­cult to fore­cast with any sort of ac­cu­racy; in fact, one can ar­gue that it is nigh im­pos­si­ble.

Against this back­ground, it is prob­a­bly best to sim­ply con­sider that, on av­er­age, eq­ui­ties have de­liv­ered real re­turns (ie after ad­just­ing for in­fla­tion) of more than six per cent per an­num since 1900.

Clearly there have been some start­ing points that were bet­ter than oth­ers over the past cen­tury. But, even if your tim­ing might have been slightly un­for­tu­nate, the fact you com­mit­ted money to eq­ui­ties a decade or two ago would make a much big­ger dif­fer­ence to your rel­a­tive wealth to­day than the ex­act tim­ing of your com­mit­ment.

There is an old African say­ing: “The best time to plant a tree was 20 years ago. The sec­ond best time is now.”

With hind­sight, we now know one could have built a very nice nest egg by in­vest­ing into a col­lec­tion of qual­ity shares prac­ti­cally any time in the past 10 or 20 years. But, hav­ing said that, if you have not been able to build up such a port­fo­lio to date, it is prob­a­bly best to start sooner rather than later.

Deon Gouws is chief in­vest­ment of­fi­cer at Credo Wealth, dgouws@cre­dogroup. com, @DeonGouws_Credo, cre­dogroup. com

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