2021 has been another year dominated by COVID19? It’s left a deep scar in our global history having devastated lives and livelihoods. Yet as life goes on there are some questions which were raised in the year affecting our personal financial planning which need to be addressed.
Should I invest in shares?
In spite of lockdowns and restrictions records have been set in the markets. The S&P 500 which is an index of 500 large companies in the US broke all time record highs 50 times this year. The JSE managed to break through 70 000 points. Shares are risky especially at these levels. The sharp fall experienced in March 2020 which was the sharpest in financial history is a harsh example of what can happen. The current valuation of shares are not a reflection of our economy so be very aware that equities are trading at extremely high levels of risk. Entering into these markets is a very brave move. A cautious approach is to average in over a period of time limiting downside risk on all of your money. Mt personal view is stay away for the short term.
Should I fix the interest rate on my bond? Interest rates were raised this year for the first time off the back of the lowest they have been in 47 years. This marks the beginning of an upward cycle and begs the question of fixing your rate on your bond. The bank sets the rate if you decide to fix it. You will probably be offered at a higher rate than the current one as they anticipate future interest rate movements and cover themselves for probable outcomes. You probably would be better off riding the interest rate cycle and focussing saving a little extra into your access bond as and when you can. The extra in your bond compensates future rate hikes as your balance owing is that much less. You will also reduce the term which will save thousands.
Should I invest offshore?
The rand broke through R16 to the US$ this year raising the question around investing offshore. Our currency has always been volatile and undervalued. Conventional wisdom is to invest abroad in other currencies to protect value. The problem is which currency and what investment? Interest rates offshore are zero. Property and stock markets expensive and risky. The decision is difficult with the uncertainty of the pandemic still playing out through the globe.
Some pundits will argue that offshore is a far better place to be than South Africa. Only hindsight will determine which is better. Most unit trusts have taken up their offshore asset swaps in their portfolios so you probably have exposure which you are not aware of. In times of uncertainty a prudent approach is to invest in certainty. Paying off debt whilst interest rates are low is a certain option which should not be ignored.
These questions do not have quick answers. They should be considered holistically. The COVID19 era is here for the foreseeable future. If in doubt take the cautious root.