Gold could be the hedge against our downgrade…..

Gold has always been a storage of wealth. The lustre of gold has attracted investors for centuries. Over the best part of the last decade, however, it seems to have lost its shine. Peaking at levels just under $1800 and ounce a few years ago in 2012 to around $1100 of in 2014. The big question is, “Will it be the safe haven when investors take flight from the stock market and look for what has traditionally been their storage of wealth?

3d gold bars and coins

There are some very good reasons to consider gold as part of your portfolio.

The ups……..                                                                                                             There seems to be upside on gold. It is has turned the corner from its low  to levels in the upper $1200’s presently. This points to a latent appetite for the precious metal as investors are not being compensated for the high prices they are paying for their shares relative to the returns received.

Rand hedge on offer…….
The rand value of gold improves if our currency weakens. So if you are concerned about our rand sliding further into the abyss with all the political and economic problems we are facing then you will certainly benefit. If the dollar price of gold moves upward and the rand weakens then the rand value will certainly be worthwhile.

The downs……..
The rand tends to surprise. Just when you think it is on a path to nowhere, it turns a corner just like of late when it strengthened from R17,00 to the dollar breaking into the range of R12,00. The recent political events leading to our downgrade weakened the rand back to levels of R13,50. Somewhat surprising, as one would have expected it to free fall much further. This again shows how unpredictable our currency is.

No compounding…….                                                                                                 Gold on its own does not provide a yield. Therefore, there is no opportunity for compounding returns into the future which is how the growth on your investment is enhanced. If you buy gold in the form of coins or exchange traded funds, then you rely entirely on the price movement and the currency differential. So it boils down to the rand price of gold over time. You can buy gold shares, however, but then you need the mine to make a profit before it pays you a dividend. There are some unit trusts which invest in gold shares and the yield, if any, in these portfolios can be reinvested  and compounded.

Do your homework and take a longer view with gold. It does look attractive at the current levels given the aversion to risk which is taking place in the markets coupled with the downgrade and the possible weakening of the rand over time.

 

So, how strong is your personal credit rating?

The recent political debacle which triggered a downgrade of South Africa has pushed our economic prospects into the dark. Whilst we try to fathom out where we are heading we anxiously await the outcomes of the Rand, Inflation, rising interest rates and low GDP.

It is far easier to change your sails before a storm than during one. We left to our country’s downgrade far too late.
Don’t make the same mistake with your personal finances. You should be well ahead in your ability to service your debt even in the face of a sharp rise in interest.
Essentially, ratings agencies assess countries ability to service and repay their loans. This provides investors and lenders with assessments of the associated risks in dealing with that country. Your personal money lenders do the same thing. They stringently assess your ability to afford your debt using key factors which provide a credit rating.

images-34Start with your personal credit rating which you can get for free from various online credit bureaus.
Update your personal balance sheet and quantify your debts taking a hard look at your exposure to debt.
How easy can your income cover the cost of the debt, is the important question? Talking into account a sharp rise in interest rates.

Work on having more disposable income by living well under your means. Buying a home or car which you can comfortably afford leaves more money behind each month. It is here where you will find the money to build up your savings and cash reserves.

Reducing your dependency on debt and increasing your savings will improve your credit rating and avoid a personal downgrade.