Summer is here

October 21, 2013

The Southern hemisphere rugby season draws to a close and our overseas visitors flock in to be by our sunny shores, marvel at our beautiful land and wonder at our diversity.

Many of these visitors will have been encouraged by the relative weakness of the rand which will see them getting much more biltong for their bucks than they would have got last year – about 20% more if you just look at the rand’s fall in the last 12 months.

Still, in contrast to India, Brazil and Indonesia, there is not yet a sense of a currency crisis, with the rand generally viewed as being overvalued last year. Its depreciation does, however, complicate the monetary authorities’ balancing act between boosting lacklustre growth and keeping inflation in check.

A weakened rand encourages export growth by making our wines, agricultural products and tourism relatively cheaper. It also makes one of our biggest service industries – call centre outsourcing – more competitive and encourages job growth. Unfortunately, it also makes some of our imports more expensive and can therefore put upward pressure on price inflation.

For clients with savings, none of this makes for a very stable environment in which to plan for their long term financial future. In order to that you need to know what your money is going to be worth in real terms, in 5, 10 or 20 years time. If you’re planning for retirement, you need to know that you’re going to have enough to pay the bills, have a nice roof over your head and have a bit of fun.

Some people say to me of course, they have no plans to retire. But, face it – one day you’ll either want to stop working or have to stop working. If you’re like a few of my international rugby clients, that day will come sooner than for most of the rest of us. As their careers finish in their early- to mid-30s (if they’re lucky) they will either be in a position to retire financially or must find some other form of employment – and that’s not easy. Why? Because since the first day they could pick up a ball, that’s been their main focus and certainly their main job for most of their adult lives. When they stop playing they’ve got acquired some great memories, some great spending habits and too often, very little else.

If we’ve had the good sense or good guidance to put something away for our futures then at least we’ll have a chance of having one – a future that is (or at least a comfortable one). But what if we have saved but outside forces – price rises, property slumps, stock exchange crashes – or some other calamity strikes (Julius, I’m looking at you)?

I’m optimistic about the future of South Africa; but I’m also optimistic that my house won’t burn down tomorrow – I still take out insurance though. For long term savings and security that means diversification and that means holding some of your wealth and savings offshore. Most experts would say about half, to be honest. That’s quite a chunk, especially if most of your wealth is already tied up in your house. I’m a strong advocate of diversity – not putting all your eggs in one basket my mom used to say – I’m sure yours would agree?

How do we balance our baskets then? With a sensible, diverse portfolio which includes offshore investments or funds denominated in less volatile currencies such as sterling or the dollar. With a weak rand though, should we wait before we invest offshore? But the rand depreciates around 6% a year on average – it’s just what the rand does because our inflation is generally higher. So is the rand going up any time soon or is it going down? I don’t know to be honest but I look at some of the current wage demands, inflation and (sidelong) at the Economic Freedom Fighter’s Commander in Chief and I think I know which side of the scales tips a little further.

Perhaps whilst we’re enjoying some of this glorious braai weather some of our savings should be heading to colder climes?

To contact Christopher Everitt at deVere Investments South Africa, contact him at christopher.everitt@devere-group.com or speak to him on 072 590 5313 or 021 831 0900.deVere Investments South Africa (Pty) Ltd, is a registered and regulated Financial Services Provider, FSP 23719.

 

 

 

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