Protect capital in bad times and get returns when market turns

My offshore investment has not done well this year. I would like to move it into an offshore fixed deposit where I can get a guaranteed return of 3.5%. Once things have settled in Ukraine, I then want to move it back into the equity market. Is this advisable?

It is never a good idea to try to time the market. Things often move quite quickly, and most get the timing wrong and end up locking in losses. I prefer to stick to an investment strategy and not take short-term action with long-term investments.

Remember, even though offshore equity has done badly this year, it has been the best performing asset class over the past five, 10 and 15 years.

The table below gives the return of global equities, when converted into rands, as at the end of September.

If your offshore holdings are part of a longer-term strategy, you should be careful when it comes to moving out of the market.

Inflation

You need to consider the impact of inflation. We are entering a time of higher inflation, and locking your investment into a product that delivers a return of 3.5% could result in your investment losing value in real terms.

Structured products

If the loss of your capital is worrying you, then consider looking at a structured product. I have been using these for those of my clients who do not want to risk losing their capital, but also want to participate in the excellent growth that you can get from offshore equities.

These structured products are available to invest in for a limited period – usually six weeks, after which they are closed. You usually have to commit your capital for a period of five years. The terms of these products vary from structure to structure. However, most of them offer a guarantee of your capital, as well as participation in a basket of offshore indices.

An added feature here is that the participation in the indices is often multiplied by a

Annual performance of the underlying

index

-10%

1%

10% factor. This can make a significant impact on your returns.

I will give you an example to help you understand how these structured products work. I will use a structured product that closed last month, so it is no longer available. It offered a 100% guarantee of capital as well as an 800% participation rate in a specific index.

This is what the gross returns would look like on an investment of R1-million.

This is a great way to protect your capital in bad times and get great returns when the market runs.