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CIARAN RYAN: It’s interesting to note that the JSE All Share Index is pretty much where it started at the beginning of 2022. The Dow Jones Industrial Index is down about 8%, and the Nasdaq is off a whopping 30%.
This is troubling for investors concerned primarily about capital preservation, and some markets did better than others, the JSE among them. As we close up the year and look forward to 2023, are we in for more troubling times for equities?
Well, joining us to discuss this is Wendy Myers, head of securities at PSG Wealth. Hi Wendy, it’s good to have you back on again. This is a challenging year for equity investors, no doubt. Give us some perspective here. How have local equities performed during 2022?
WENDY MYERS: To your summary, local equities have held up pretty well when compared to offshore exchanges. And obviously from an investor perspective we promote diversification across local and offshore. So, I would imagine those investors that have that diversification are looking at offshore returns and are quite troubled by it.
I think fundamentally we need to look at how your approach to investing is [suited to] the long term. Fundamentally we are very keen on investors having a more predominant local focus when it comes to diversification, and a reduced exposure to offshore – and it’s been evident from the returns of this last calendar year.
Looking forward, I think we are going to see further volatility, especially given offshore interest rates, and it’s something we haven’t seen for the last 10 years. So, investors need to buckle up for the ride. What’s pleasing, though, is not only that the [JSE] All Share [index] has sort of ended where it started, but there have been some really good gains across certain sectors.
I think the banking sector is a prime example of this, where we’ve seen north of 25% returns across some of the larger banks from a share price perspective, and that’s obviously in the context of increasing interest rates where these banks typically can make higher returns.
CIARAN RYAN: That’s quite a good return – 25% for the banks at a time when world markets look like they’re in trouble. Now, how do people get access to these equities? A lot of people will be DIY investors, others are familiar with unit trusts and the various retirement funds. So, explain the investment vehicles that are available to investors, and how they can get exposure to local equities?
WENDY MYERS: If an investor is a bit more confident in investing on their own, they’re able to invest in a direct share portfolio, and with PSG we offer that ability for investors to do that. Obviously, the investor needs to be aware of their risk profile, the amount of money they wish to invest. And typically, depending on the value of that investment, certainly the more material investments, we do recommend engaging with a PSG advisor to assist you in crafting your portfolio.
For those that are not as risk tolerant, I think unit trusts are a very good way of easing into the investment market. Unit trusts obviously reference equities.
You can have some unit trusts that are solely equity based and have diversification across sectors. Then you have certain unit trusts that we call our multi-assets, which give you exposure to bonds, cash and equities, so the returns might not be as marked as maybe a purely equity-based unit trust, but it’s great for giving the investor that sort of entry-level exposure to investments.
CIARAN RYAN: It’s clear that equities should be seen as a longer-term play because I think over time they do beat inflation. Why should equities, though, be considered part of anybody’s retirement plans?
WENDY MYERS: Well, I think, fundamentally, we all want to retire comfortably. We want to know that at the end of our career we have enough in our pockets to be able to live a relatively decent life and have a similar standard to what we’ve been used to. And if you are predominantly invested in cash and bonds we don’t believe for the long term that that sets you up for success from a retirement-goals perspective. So really the key is to ensure that you have at the very least a 50% exposure to equities, in my personal opinion. And that sets you up for success in the long term.
CIARAN RYAN: So 50% into equities. What about the rest? What’s the other 50%?
WENDY MYERS: Well, I think bonds have typically generated very strong returns to investors. We have seen not as much return on bonds this year – I’m talking local bonds of course – but I still believe that is a very good combination to add to your equity exposure. And then there’s cash. I think in a strong interest rate environment cash can deliver some strong returns. So, I wouldn’t underplay having exposure to that.
I’m keen on a full equity exposure, but then that’s because I’m used to it and it’s something that I’m comfortable in.
But I think investors really do need to sit down with a financial advisor, plan out what their requirements are from a retirement perspective – considering things like medical expenses, the rand depreciation – and really have a look at what that diversification needs to be from a local perspective, and then see what can be added from an offshore perspective.
So, it’s just driving that balance to talk to what the investor’s risk profile is; and the financial advisor is able to match that quite well.
CIARAN RYAN: Okay. Just to be clear, the financial advisor’s role in this of course is not to select the equities on your behalf, but really to decide maybe asset allocation, as you mentioned before. So just explain what the role of the financial advisor is in this process?
WENDY MYERS: Well, they typically sit down with you. They look at your current assets, they look at your risk profile. They look at how comfortable you are across the different types of securities, whether it be bonds, cash, equity property portfolios, etc. They will help you craft that investment and the amount that is required to be contributed towards your investment on a monthly basis.
Obviously, most investors have a retirement plan; they have a retirement annuity (RA). But often we find that those contributions when it comes to retirement aren’t sufficient.
So, you really need to sit down with your advisor and say, ‘This is what I currently have from a retirement perspective’, and your financial advisor will say whether it’s adequate or not to fulfil your requirements, which you will define.
And then they will guide you as to what additional investments you can make – and that would talk to equities or unit trusts. That’s obviously in addition to your contributions to your RA, to your retirement plan. And they might even talk to tax-free savings accounts and certain tax wrappers that can assist you.
CIARAN RYAN: As we look forward to 2023, are we in for some troubling times or are there some good values, good bargains to be had?
WENDY MYERS: I think there are some good bargains offshore now, but I don’t believe it’ll be as volatile as this calendar [year].
But you never know. It would be lovely to have a crystal ball.
I just think that fundamentally when investors look to their investments, they must get comfort that they are adequately contributing towards investments monthly and annually, and they need to look to the long term.
I think you need to understand that markets are volatile; they react to sentiment, they react to macroeconomic activities – and you need to take some of the noise away and understand you are committed in your investment journey and you know where you need to end up. Your financial advisor will be with you along the way to guide you and to keep you on course.
CIARAN RYAN: Wendy Myers, head of securities at PSG Wealth, thanks very much for joining us.
WENDY MYERS: Thank you very much for having me today.
Brought to you by PSG Wealth.
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