If you suffered losses in your portfolio because of the COVID-19 pandemic, it remains sensible to stay invested until markets recover reasonably. However, this does not mean that things will not be volatile over this recovery period, but capitulation now, and selling out of the markets, will only lock in those losses. Be very cautious of equities for new money and rather wait for global volatility to subside before entering equity markets with new money. If you have money invested in the money market or have additional cash to invest, an investor will need to have a slightly higher risk appetite for now than in the case of cash. For an abnormally long period of time in SA, money markets were offering us rates of return roughly 2% to 3% above that of inflation. This now seems to have normalised and money market returns are currently at, or below, inflation (when taking tax payable on interest into consideration). Therefore, other asset classes such as bonds become far more favourable for investors as these asset classes have the ability to offer inflation-beating returns with only slightly more risk.
It is recommended that you do not buy individual bonds, but rather a basket of these fixed-income instruments in the form of a unit trust, where liquidity is on offer without forfeiting interest because of an early exit. Taking an objective look at the SA economy, we need to appreciate that there are significant longer-term risks in owning SA debt, and thus an exit strategy or time horizon for owning this asset class is important at present.
Ideally, investors should take advantage of times of rand strength to continue sending funds offshore and building up more of your wealth in other parts of the world, where the risk vs returns equations make more sense in the longer term. Therefore, if retirement planning is your focus right now, it is important to consider your time horizons to retirement, the liquidity of your investable assets, and the ability to invest as much of those assets offshore as possible. This may come at the expense of tax benefits, for example choosing to rather invest directly offshore than adding to your retirement annuity (RA), or opting to take a larger taxable lump sum from your retirement fund at retirement to diversify offshore.
The bottom line is that increasing offshore exposure over time is most important when planning for your retirement right now and, in this context, each investment decision that you make today, can literally be the difference between having a poor or well-to-do retirement lifestyle.
