Keep calm and play the long game


It has been said many times by many authors that your greatest asset is your ability to earn an income.

Canadian motivational speaker Brian Tracy took things a step further, adding: “And your greatest resource is time.”

Literature and studies on saving for wealth or retirement make this very clear. If an investor saves a significant proportion of their income from their very first pay cheque, the compound interest effect is astounding. Earning interest on interest on interest over many years – or dividends on reinvested dividends in the case of investment accounts – makes a huge difference in building up one’s wealth.

Every salary earned presents an opportunity to invest and build wealth, and it’s never too late to start.

What to do in a time of volatility?

Even the most diligent investor who has been steadfastly putting away money since day one may feel somewhat spooked by the current economic and geopolitical conditions and wonder what they should do – keep money locally? Diversify globally? Add more to their retirement annuity, look towards alternative investments?

Don’t react irrationally or immediately – that’s the first step.

Try not to panic and make decisions at the wrong time is the advice from David Crosoer, chief investment officer at PPS Investments.

“The longer your investment horizon, the more resilient you are to volatility,” says Crosoer.

“It can be very challenging to try and trade through volatility because it is so easy to get the timing wrong.”

PPS however relies on investment managers to take advantage of volatility, where appropriate and where mispricing in the market means opportunity. Crosoer favours a multi-manager approach as this is more resilient to short-term volatility.

“This is especially true if it is put together with manager strategies that complement each other,” he adds. “At PPS Investments we have built a 15-year track record that has competed favourably in most market conditions, by being quite deliberate about the managers we appoint and the asset allocations we make.”

No matter the investment vehicle chosen – whether a retirement annuity, an investment account, or an offshore fund – if the underlying investments are handled with a multi-management approach, the benefit to the investor is clear, says Crosoer.

“You can access exceptional asset managers, in a portfolio that you know has been carefully put together and will be appropriately evaluated over time.”

The company offers eight multi-managed funds with different goals and outcomes to suit most investors’ needs.

Is anywhere without risk?

In Crosoer’s opinion, South Africa has fared somewhat better in the past volatile year, ironically because the country has long been grappling with many of the economic themes the developed world has only recently been hit by.

“Globally a major theme in 2022 has been stubbornly high inflation and slowing global growth, post a period where interest rates have been kept remarkably low for more than a decade, combined with heightened geopolitical risk and institutional stress,” he says.

“In SA we have been grappling with many of these themes for many years, basically since 2008. So we have held up somewhat better as our valuations at the start of the year already reflected some of these risks.”

Across the world, a general repricing in asset classes is now happening, says Crosoer.

He is still of the opinion that South Africans need to try to diversify SA-specific risk, even though our assets currently look relatively attractive to foreign investors.

“What has become clear over the last couple of weeks, with news of the Phala Phala scandal fuelling rumours that the president was going to resign, is that not all negative risk has been priced into South African assets yet. Offshore diversification remains important.

“In our view, the big risk today is whether, in both the South African market and abroad, short-term interest rates will need to be raised more than the market is currently expecting.

“Here, having some exposure to cash is helpful, particularly if it allows one to exploit conditions should asset prices become even more attractive.”

Things can only get better, or can they?

“Investors have to remember that we are all biased. If there have been a lot of negatives, at some point the odds are that we will be positively surprised,” says Crosoer.

“Generally, the world has turned out better than people expected. A lesson to heed is that you shouldn’t be so pessimistic that you can’t benefit when things turn out better than expected.”

He argues that if investors structured their portfolios correctly and their timeframes were appropriately long, the current volatility is just something they know they need to deal with.

“If you are trying to grow your wealth with returns that beat inflation, you are going to have to take on equity risk and manage volatility.

“The right time to decrease risk is when the market is running – not the other way around.”

Sensible diversification

The only way to plan for an uncertain future is to sensibly diversify and to never be too overtly dependent on any one particular outcome.

This, says Crosoer, is the best framework to follow when looking at your investment portfolio for pre- and post-retirement funds.

It also means looking for investment partners that diversify within their manager selection process as well.

“You should not have everything invested with a manager that uses one specific style. If your funds are invested across managers with different styles, this helps to protect you.”

The most important rule of thumb when you look at diversification is to make sure you are never “taken out”, he says.

“Don’t invest in a way that will force you to sell at the wrong time.”

Brought to you by PPS Investments. 

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