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Ports in a storm: Investing in uncertain times

If 2017 were a spy novel, we’d laugh at it for being too over the top.

 In the first two weeks of February alone, Donald Trump’s National Security Advisor was forced to resign after intelligence services recorded him meeting with Russian spies, photographs of Trump and his team going over classified documents in front of guests at his private golf estate surfaced on Facebook, North Korean leader Kim Jong-un’s half brother was assassinated at Kuala Lumpur airport, apparently poisoned by a squad of North Korean secret agents, and the Iranians test fired a missile, seemingly to assess the new US president’s mettle.

Back home, the EFF were violently ejected from parliament after heckling President Zuma in the lead up to the State of the Nation address, following which the DA staged a walkout. All this while South Africans still contend with uncertainty about the ruling party’s next candidate for president.

These are interesting times, and only the brave, or the reckless, will confidently place bets on the future.

What does it all mean for your personal finances?

 There’s no cause for panic. Political and civil institutions, in America, South Africa and elsewhere, are holding up reasonably well, and it’s always tempting to see our present moment as uniquely unstable. But with so many unpredictable political shifts, it’s not surprising that many people are looking for a safe harbour for their investments. Here are some potential options:

Gold

 Gold is a traditional hedge in times of crisis. Although gold has no intrinsic value and its price can change significantly depending on sentiment, it has a good track record as a store of value over hundreds of years.

Cash

What could be simpler than keeping your cash in the bank? Investing in a high interest savings account is the least volatile way to earn returns. Of course, while you’re protected from downside, your potential gains are significantly lower than riskier investments, such as investing on the stock market.

Dollars

Storing your wealth in a rand-denominated bank account still leaves you exposed to the volatility of the South African currency. The Rand is highly sensitive to changes in global risk appetite and will likely take a big fall with bad global news. So while your cash account won’t lose value in rand terms, those rands could lose value in hard currency. US dollars have traditionally been investors favorite investments in flights so safety, ironically even when the anxiety has its source in the United States.

US Treasury Bonds

 US Treasury Bonds are stable, liquid and secure. They also offer very modest returns, so are a prized more for their stability than as inflation-beating investments. T-Bonds are issued by the US federal government, so only a total systemic breakdown of the world economy is likely to see them failed to be honoured. But be aware they are already very expensively priced on a yield basis compared to history.

Keep calm and carry on

Here’s a remarkable statistic: the JSE has averaged 15% annual returns over the last twenty years, but if you’d missed just 75 of the highest trading days over that period, you would end up making nothing. The lesson seems clear. For ordinary investors, gains come from being consistent and not trying to time the market. Investing in the stock market is a long-term strategy. For nonprofessional investors, sell your shares in a panic and then reinvesting when things calm down is more likely to hurt your investment than protect your wealth in the long run.