If you are not asking yourself this question yet, here are some reasons why you should:
Cash (prime overdraft rate): 15.5% (June 2008) now 13% Down 16%
The Reserve Bank changed the frequency of its meetings to monthly (excl. July) and cut the repo by 100bps in March. A further 100bps cut is expected in April which should give even more relief for the indebted. We would expect another 250bps-300bps in interest cuts which should provide a strong stimulus for equities.
Although cash provide a positive return on investment, the trend is down and you might end up earning only 9.5% on your cash at the end of the year.
SA Equities (JSE All Share): 33 000 (May 2008) now 20 000 Down 39%
Markets remain volatile and a further correction in the market cannot be ruled out. However, the second half of 2009 should be an improvement on the first, with equities expected to re-rate ahead of the economic recovery.
Equities went from its low of 17 770 (Nov 2008) to 20 000 currently. This is an improvement of 12.5% over 5 months which is a 30% annualised return.
Example on possible investment:
If you invest R100 000 in cash for 5 years and you end up earning 9.5% interest on average over the period (before tax), your R100 000 will grow to R157 424. This is an 11.49% annual growth.
If you invest R100 000 in shares for 5 years and you end up earning half the last 5 month average annual return (15%), your R100 000 will grow to R201 136. This is a 20.23% annual growth.
Conclusion
One should look at the markets objectively and intelligently. An investor should understand that investing in cash could be just as risky as investing in shares. Too much cash has an opportunity cost (earning less than one could earn elsewhere), and too much shares could have an absolute cost (losing money).
Stick to an investment philosophy of:
· Hold enough cash to cover expenses for the next 5 years.
· Invest the rest in shares, bonds and listed property.
Tuesday, April 28, 2009
Thursday, April 23, 2009
Elections!
An ex colleague and very good friend of mine wrote the following piece on his website regarding the SA election. I found it uplifting like all of his insights. This has no direct connotation with investments except that a stable country will create investment magic.
By Louis Fourie (The Logic Filter)
“What went through your mind during the election period?”
I actually enjoyed all the private debates, political rhetoric and trumpeting of viewpoints. Not always because of the quality of the content or purity of intent, but because of the privilege to live in a society in which free expression precedes proper elections.
Fifteen years may feel like a long time, but in times like these, I always remind myself of a time not too long ago when our highways were empty most of the day; convenient, but eerie. When state spending was the engine of paltry economic growth, our weapons industry our national pride, Waterkloof Air Force Base busier than Jan Smuts International, and Eskom sitting with 60% overcapacity. A time when we needed two exchange rates to imprison capital, and during which the tax burden of individuals doubled in ten years to finance the organs of separate development and support a nation isolated from free trade.
Those were the times when we had to pay amateur sportsmen to play against us, when we had to put strange labels on our export wines, when some of our SAA aircrafts had to be painted white to secure brief landing rights. When millions have never uttered or heard the names of their future heads of state.
Personally, I always pity the fact that many great people never had the chance of meeting during those years, as making eye contact, shaking hands and having a meal together were segregated events.
Despite all our shortcomings and some fifteen years down the bumpy road of normalisation, I’m really proud of the fact that we are no longer a bankrupt nation, that we’re standing tall even in a time when leading economies stumble. That policy makers had the insight to choose the path of evolutionary economic restoration, instead of latching onto all the popular theories of the early nineties that promoted fast-tracking of reconstruction in some or other unsustainable way.
I’m proud of an unfettered-with Constitution that enshrines the rights of all our people - and the landmark rulings which resulted from it over the last fifteen years. Of a change in Presidents without civil unrest. Of our free press and robust civil society – the ultimate guardians of democracy. Of the distance between state and religion. Of the fact that private fixed investment spending has become one of the dominant drivers of economic growth.
I feel indebted to the majority of South Africans out there who chose reconciliation, participation and respectfulness above indifference or resentment. And I’m really proud of our business acumen, which equips us with the competitive guts to do global business on merit, the organisational savvy to conduct free and fair elections, and the sophisticated edge to fluently assemble the stage for the world’s ultimate sporting event in 2010.
While standing in the queue to cast my vote, I dreamed of a future in which the life expectancy of our nation starts rising again. A future in which all people who want to work are skilled enough to find a job, when parents can be proud of the dwellings in which they raise their children, and children be proud of their parents. I imagined a South Africa that is a no-go area for organised criminals and violent perpetrators, and too transparent for corruption to flourish.
I pictured a country served excellently by its state departments and local authorities, buzzing with small businesses, propelling their young into a life of opportunity off an innovative education system. I pictured forty eight million people boasting a proud one-ness.
While casting my ballot, I renewed an intimate commitment to be a net source of energy to this country. To leave it better off every day, however small the contribution may seem. And to afford dignity, goodwill and respect every step of the way, remaining deeply cognisant of a sacred opportunity to help eliminate our legacy of disregard and neglect.
Regards
Louis
www.thelogicfilter.com
By Louis Fourie (The Logic Filter)
“What went through your mind during the election period?”
I actually enjoyed all the private debates, political rhetoric and trumpeting of viewpoints. Not always because of the quality of the content or purity of intent, but because of the privilege to live in a society in which free expression precedes proper elections.
Fifteen years may feel like a long time, but in times like these, I always remind myself of a time not too long ago when our highways were empty most of the day; convenient, but eerie. When state spending was the engine of paltry economic growth, our weapons industry our national pride, Waterkloof Air Force Base busier than Jan Smuts International, and Eskom sitting with 60% overcapacity. A time when we needed two exchange rates to imprison capital, and during which the tax burden of individuals doubled in ten years to finance the organs of separate development and support a nation isolated from free trade.
Those were the times when we had to pay amateur sportsmen to play against us, when we had to put strange labels on our export wines, when some of our SAA aircrafts had to be painted white to secure brief landing rights. When millions have never uttered or heard the names of their future heads of state.
Personally, I always pity the fact that many great people never had the chance of meeting during those years, as making eye contact, shaking hands and having a meal together were segregated events.
Despite all our shortcomings and some fifteen years down the bumpy road of normalisation, I’m really proud of the fact that we are no longer a bankrupt nation, that we’re standing tall even in a time when leading economies stumble. That policy makers had the insight to choose the path of evolutionary economic restoration, instead of latching onto all the popular theories of the early nineties that promoted fast-tracking of reconstruction in some or other unsustainable way.
I’m proud of an unfettered-with Constitution that enshrines the rights of all our people - and the landmark rulings which resulted from it over the last fifteen years. Of a change in Presidents without civil unrest. Of our free press and robust civil society – the ultimate guardians of democracy. Of the distance between state and religion. Of the fact that private fixed investment spending has become one of the dominant drivers of economic growth.
I feel indebted to the majority of South Africans out there who chose reconciliation, participation and respectfulness above indifference or resentment. And I’m really proud of our business acumen, which equips us with the competitive guts to do global business on merit, the organisational savvy to conduct free and fair elections, and the sophisticated edge to fluently assemble the stage for the world’s ultimate sporting event in 2010.
While standing in the queue to cast my vote, I dreamed of a future in which the life expectancy of our nation starts rising again. A future in which all people who want to work are skilled enough to find a job, when parents can be proud of the dwellings in which they raise their children, and children be proud of their parents. I imagined a South Africa that is a no-go area for organised criminals and violent perpetrators, and too transparent for corruption to flourish.
I pictured a country served excellently by its state departments and local authorities, buzzing with small businesses, propelling their young into a life of opportunity off an innovative education system. I pictured forty eight million people boasting a proud one-ness.
While casting my ballot, I renewed an intimate commitment to be a net source of energy to this country. To leave it better off every day, however small the contribution may seem. And to afford dignity, goodwill and respect every step of the way, remaining deeply cognisant of a sacred opportunity to help eliminate our legacy of disregard and neglect.
Regards
Louis
www.thelogicfilter.com
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