How can we invest for growth amid times of uncertainty. A market update and advice from Floris Slabbert on Groot FM.
As we predicted last week, South Africa’ credit rating was not downgraded by Standard and Poor’s- what does this mean for investors?
After Friday’s announcement, the rand traded 4% higher against the US dollar, reducing some of the pressure on the South African economy and investors.
With oil trading at just over $50 per barrel, the strengthening of the rand will hopefully lead to some relief in fuel prices.
The situation, however, remains concerning. How will the markets react to this?
Internationally, America announced their employment figures, which were weaker than expected. This was good news for South Africa because of the resulting dollar weakness. The gold price also increased due to America’s economy that is seemingly stagnating.
With all this uncertainty, should investors then rather be investing in money markets or other interest bearing investments?
The simple answer is no. Interest does not protect you against inflation, which is currently between 6.3-6.5% on average. The problem with money market funds is, that if you invest too much capital there, excluding funds set aside for an emergency, your investment will not grow adequately to outperform inflation.
The money market rate is currently around 5.8% compared to inflation of about 6.3%, which means in real terms your money will be worth less. Amid uncertain economic times, investors should rather be looking at fixed term investments of three to five years, with returns linked to the prime interest rate. Additionally, consider tax-friendly investments rather than interest bearing investments to maximise returns. These could include investments such as listed preference shares that yield attractive dividend rates.
Bitcoin has been in the news recently, what are your views on it from an investment perspective?
Bitcoin is a digital currency that trades internationally. It is not regulated by a monetary committee or management structure like the Reserve Bank and has been around since 2009. An investment in this currency potentially places an investor in a different risk category. It is wise to consider your risk appetite and portfolio diversification and if there is an appropriate match, this type of investment might be an option for some investors.
How does Bitcoin work?
Bitcoin can be traded and transferred from one person to another. The question is, how this currency’s value is determined and what is it compared to? Currently it is mainly compared to the US dollar and trades at around $570 or R 8,572 per Bitcoin. The concept of a virtual currency remains very modern and technologically advanced, and the uptake in the market has been relatively slow.
Ecsponent’s focus for this month
In the month of June Ecsponent will be focusing on the different life phases and investment stages of investors, to enable them to invest for groeth. For example, we will compare the needs of 30-year old investors, with those nearing retirement and consider the tax implications and risk factors you should be considering during each of the different stages.