2022 – A year to forget
A year ago we were still very optimistic about 2022. It is ironic that the international markets peaked on 1 January and have been trending almost exclusively in one direction ever since.
What went wrong?
In a word – EVERYTHING. Inflation, war, China’s zero-covid policy, and painful interest rates were some of the main culprits. This has wrecked the markets. A well constructed portfolio is diversified. In 2022, all assets lost value, which was a major challenge for any portfolio. This led to one of the worst years for balanced and well-diversified funds. All asset classes except money market struggled. The question is whether we should sit back and shift into cash. In hindsight, this makes sense, but all the research shows that trying to time the markets does not work. Imagine you are driving on the highway and you change to the faster lane. As soon as you do, the other lane starts moving. Similarly, with assets that have performed well in the past, they might be the stars of tomorrow.
Christmas miracle
I never look at my investment statements from month to month. Loss aversion makes this too painful. I know with certainty that my investment will do well in the long run and I can ignore the short-term fluctuations. The first six months were terrible, but in the last 6 months we have fully recovered. Fund values bottomed out in June and balanced funds recovered between 13% and 8% in the last 6 months. This gave most portfolios positive returns for the year. Given the load shedding, political shenanigans and other bad news, markets have performed extremely well.
2023 and beyond
I can tell you with 100% certainty that only a fool will try to predict what will happen in 2023. There will be extreme volatility, much like this year. If better news than expected is released, the markets will soar. When bad news is released, they will crash again. The stage is set for a spectacular decade. Expectations for South African equities over the next 10 years are (on average) more than 10% above inflation. SA Property about 10% above inflation and for SA bonds 7.5% above inflation. Growth for the international market is slightly lower, with an underweight position in US equities probably the best choice.
Your portfolio
It is very easy for an advisor to advise a client to invest as much as possible in the highest long-term assets. If we were all robots and invested for the long term, that would be perfect. Everyone has a different risk appetite and volatility affects us differently. Our emotions are constantly fighting the logical part of our brain. If your emotions get the better of you in a year like 2022 and we have positioned you in a high growth portfolio, wrong decisions could be made at exactly the wrong time. Please talk to your advisor if you are unsure whether your portfolio meets your needs.
A positive note
When everyone is telling each other how bad our country is and that we are heading straight for bankruptcy, you can set the record straight. In 2020, South Africa was expected to be heading for a fiscal cliff and a debt crisis. It was estimated that our country’s debt to GDP ratio would be between 90% and 100% in 2022. Thanks to various lucky breaks and despite load shedding, floods and strikes at Transnet, our debt to GDP ratio is now 69%. This is considered a safe level as we are steadily reducing the debt burden and not putting ourselves in a situation we cannot get out of.
You can quote me, but never bet against South Africa. We are great at achieving our own goals and pushing things to the limit, but we have grit and never give up. When our backs are against the wall, we snatch victory from the jaws of defeat. Do we really have to break things before we can fix them? I do not know, but the South Africans will come up with a plan. I am very confident that this dark period will pass, that we are ready for growth and a time of rejuvenation.
