Let data not emotions guide your investments

 

When it comes to investing, we often allow too much information to over-complicate our investment strategy.

If you read the news headlines this morning, you would believe that the COVID-19 crisis is overwhelming the world economy, your house is going to collapse in value and your investments are plummeting. In short, you would be better off cashing in your investments and going on holiday (if you could), hitting the pubs (if you could) or just splashing out on some retail therapy (if you could).

Seeing as all the fun in life has been taken away in the short-term, let’s try and contextualise what has actually happened in the market since the start of 2020.

Have stock-markets and key indices collapsed around the world?  

Well … no.

If we look at the performance data that was presented to our OUTvest investment team as at 27 May 2020:

  • The JSE Top 40 is down just 2% over the last 6 months (Total Return)
  • The Nasdaq Composite is up 35% over 6 months
  • The Euro Stoxx 50 is down 1.2% over the same period of time

The property sector is a tale of two stories with the local sector down heavily with FTSE JSE listed property index down 44% while the S&P Global Property index is down 7.8% over the same 6 month period.

Even the Rand pessimists would be pleasantly surprised to know that the Rand has actually strengthened against the US Dollar (8.6%), the Pound (10%) and the Euro (8.9%) over the last 3 months. This supports our investment committee view that assets in South Africa are attractive relative to many Emerging Market peers. 

It is not easy out there, but the end of the world has not arrived and your wealth has not been destroyed.

 So what are the trends that are likely to impact your investment in the foreseeable future?

  • Global interest rates are at record lows and this gives a huge opportunity to de-leverage if you have debt. If you are a South African homeowner with a bond of about R 1.5 million  and your interest rate has been reduced from 10.5% to 7.75%, this will save you over R2600 per month. Take a look at a bond calculator here to work out what you might be saving every month on your own home loan. 
  • Dividends across the globe have been cut as companies try to retain cash. According to the Wall Street Journal, more companies have cut dividends in 2020 than over the previous 10  years combined. Those investing for dividend income will feel the pressure. 
  • Hundreds of billions of dollars have been injected into the world economy through various stimulus packages. Historically, these stimulus initiatives have driven inflation and explains some of the recovery in share prices since the lows of May.

With so many variables, it becomes almost impossible for retail investors to stay on top of all of the investment decisions around what to invest and where to invest it. In times like this, we do well to keep things simple. Focus on remaining diversified, across both countries and investment types, keeping investment costs low. This is the way that we invest your money at OUTvest.

 In the worlds of the investment team from The Motley Fool – one of the most respected finance content teams in the world:

 

“To outperform you can be:

 - Smarter than other investors.

- Luckier than other investors.

- More patient than other investors.

The last is where the big money is made.”

OUTvest is a licensed Financial Services Provider

 

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