It’s been a year of turmoil, to say the least. Locally and Globally. If you have your head above water at the turn of this year then congrats!!! You have been through one of the toughest years in our economic history.

There is some breathing space which we have managed to create as we end this year.

Averted a downgrade

Ratings Agency Moody’s has kept us alive by holding onto its rating on our Bond’s meaning that foreign investors can still deal with us. So important as it has created some time for us to avert “Junk Status”. 

Worked our way upwards from a technical recession in the 4th quarter

After a technical recession in quarters 2 and 3, we surprised the markets with a rebound in quarter 4 of 2,2% GDP. This takes us upwards and away from the gloomy expectation of negative growth and hopefully toward positive territory in 2019. 

Oil prices retreated at the end of the year

The great story for 2018 from a South African point of view is the oil price retreating from over $80 a barrel to the mid $ ’50s. There is every reason to expect a cheaper pump price for petrol and diesel and may we never get anywhere near the R17 per litre again.

So whilst their year was full of turbulence we do have some good news to take into the new year. 

Here’s to a happy and improved 2019.

Start with your net worth                                                                                          

Create a personal balance sheet totally your assets and liabilities The difference is your net worth. The idea is, if you were to sell everything you own and paid off everything you owe the amount left over is how much you are worth. This is an essential starting point for a sound financial plan as it establishes where you are financial. It also identifies opportunities how to improve your worth. You could target to pay off your liabilities sooner and/or invest in assets that grow better. 

Preserve your capital                                                                                                

2019 will start with markets trading at dizzy heights shrouded in a cloud of uncertainty. If you lose 50% of your capital you need a 100% return to get it back. Your investment should be positioned to preserve capital. 

Seek certainty                                                                                                                Of all the asset classes to invest in cash is king. Equities have underperformed in all sectors for the last few years. Property in all sectors to has underperformed. This isn’t surprising as our economy has weakened and interest rates have risen in the past few years. Certainty is found in the current interest rate cycle which has trended upwards over the past few years creating an opportunity to find returns of up to 8% in the money market.

Don’t ignore debt                                                                                                           As interest rates move upwards so does the cost of debt. It stands to reason that the sooner debt is paid off the more one saves. The direct return is the percentage of interest being charged. So, paying off a credit card at 22% saves you that amount immediately. This is much more certain than trying to find an investment that will guarantee you the same return.

Avoid risk                                                                                                                    2019 will be a tough year both locally and globally. Whilst it defies the conventional wisdom that ‘time in the market’ is the tried and tested strategy we should consider being less conventional and defend our investments in cash and debt until there is a compelling reason to diversify into the other asset classes. Your pension fund, and retirement annuity fund should be switched into the money market for the foreseeable future. Any lump sum amounts should be invested in a money market account. Debt offers the best return for the new year.

2018 has revealed how unconventional the world has become. In the conventional days, one would predict the future with some certainty as the past performance was a guide to the future. 

Economics 101 sets out a principle in economic cycles. In a free market, there should be as little intervention as possible. Since 2018 which was the worst crash since the great depression central banks have intervened like never before.

This has propped up a market which has run so far ahead of itself that it is now dizzy. Thursday this week signalled the toppling of the inevitable. For the past few years, assets have performed negatively except for cash in South Africa (7%). 

Conventional wisdom says it’s time in the market. This is probably more applicable if you are already invested as there is a cost to sell or switch. Unless, however, you are invested in a tax-free wrapper or a retirement fund which has no effect on the subsequent capital gains tax. 

As unconventional as if seems, an option to consider is switching for the short term, your retirement funds to a money market fund. Immediately, you will lock in your capital with very little risk of losing it and enjoy positive returns off the back of our rising interest rates. Retirement funds and tax-free savings accounts escape the capital gains tax implications so you protect value as opposed to unit trust and endowment investments.

For the risk-averse, this strategy will not harm you in the least. You will be investing in certainty for the foreseeable future positioning you to switch back when certainty is restored. 

It must be emphasised that this is a short-term strategy and should be reviewed alongside your investment goals over time. If in doubt, talk to your financial advisor.