Connect with us

Investing

It’s Time To Diversify Your Portfolio

It might be time to send some money offshore, even if the value of the rand is worrying.

GG van Rooyen

Published

on

International-investment

2015 was a tough year, and things aren’t letting up. In fact, recession remains a very real possibility.

“While it may be too early to anticipate the South African economy slipping into a recession, the economy struggled in 2015, with a second-quarter contraction of 1,3%, followed by third-quarter growth at merely 0,7%,” says Autus Fund Managers analyst Francois Roux.

“Drought conditions could continue to hurt the economy over the next few months, especially the agricultural sector. The tumbling oil price has helped local consumers and businesses that use oil as a production input, although much of this benefit has been offset by a depreciation in the rand.”

Related: Trends In Investing For Entrepreneurs In South Africa

 

Diversification

In the second half of 2015, economies around the world had to deal with challenges such as poor growth, currency volatility and inflation, amongst other factors.

Emerging markets, in particular, were worst hit as a result of the flight of capital to more developed economies, the heavy reliance on commodity prices, which have come under pressure, and a depreciating currency.

South Africa, forming part of this grouping, has its fair share of similar challenges, exacerbated by concerns around the long-term impact of the current drought. Reviews by ratings agencies and the increase in US interest rates also forecast a tough outlook for the country.

Eric Enslin, CEO of FNB Private Wealth and RMB Private Bank, says, in light of all these factors, investors have to consider diversifying as part of their long-term investment strategy, and in the process, minimise the risk associated with the current economic adversities.

“Investors with high exposure to equities would have already seen the need to diversify their portfolios as the local market has come under severe pressure over the last year. The main aim of diversification is to limit volatility or risk within your portfolio and thereby smooth returns over time.

“It is important to have a planned diversification strategy in order to achieve your stated goals. Random diversification could lead to uncertainty about the outcome. Diversification also needs to take place over asset class, sector, geography and currency, amongst others.

“Local investors will have a lot to ponder because of the number of adverse factors that continue to weigh heavily on the local economy.

“Compared to global norms where investors often explore opportunities in foreign countries, South African investors predominantly invest locally. On one hand, this shows confidence in one’s domicile country but it can limit the maximising of investment opportunities and one’s investment strategy.

“You need to have a holistic investment approach, because every region or country offers a unique opportunity. For instance, some analysts have questioned whether emerging markets can deliver on their potential amid the challenges. However, emerging markets are hard to ignore as a source of return in a diversified portfolio.”

Going offshore

Indeed, with the current state of the local economy, investing offshore is looking increasingly canny. At the same time, though, it is also looking expensive. So, is it a good idea?

“The rand, which was down 25,9% against the US dollar over the course of 2015, will continue to be a big theme in 2016. Depending on the investor’s view of the local currency, it might be worth considering global equities as a prospective asset class. If the rand loses further ground against its global counterparts, investors will see gains in their offshore holdings,” says Autus’s Roux.

Adrian Saville, chief strategist for Citadel and Cannon Asset Managers, is a huge proponent of value investing. For him, this often means going offshore.

Related: Enko Education Investments Matches Money With Passion

“There’s always a temptation to think that everywhere else is safer than here when it comes to investing. This obviously isn’t the case, and, moreover, investing overseas is expensive now,” says Saville.

“However, I still believe that global diversification is a good idea. You should invest in things that you identify as working well — you need to look at a company’s dividend yield, quality, size and momentum. There are high-value opportunities that simply aren’t available locally.”

Galileo Capital executive director Warren Ingram agrees. “I wouldn’t suggest that people rush to get their money out of the country. We faced the same scenario in the early-2000s. The rand lost a lot of value quickly, and then slowly drifted back. I think there’s a good chance that we will see the same thing happen again,” says Ingram.

“Still, I would recommend having about a quarter of your total wealth outside of the country. And it would be a good idea to feed your money into the market over a period of six to nine months.”

GG van Rooyen is the deputy editor for Entrepreneur Magazine South Africa. Follow him on Twitter.

Investing

The Best Way To Get Your Teenager To Start Investing Right Now

Jeff Rose advises a young fan on where to start his investment journey.

Published

on

teenagers-investment

In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.

Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.

In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.

As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.

Related: Making International Investing Simple And Transparent – CybiWealth Digital Platform

Click on the video to hear more tips for a younger investor.

This article was originally posted here on Entrepreneur.com.

Continue Reading

Company Posts

5 Insider Tips Every Trader Needs to Know

Here are five insider tips that every trader needs to know.

Ethan Featherly

Published

on

forex-trader-working

Like in every profession, there are a lot of figures circulating regarding how many forex traders actually make money, and how many traders lose more money than they earn. We are not going to launch into speculations that we can’t prove with accurate statistics. However, there is one thing we can say without citing any official sources: there are more people losing money than those earning.

Why? The answer can be found in the annals of human psychology. Some go into forex expecting to get rich overnight, while others do not (understandably) have the time to dedicate themselves fully to this activity. So what can you do, concretely, to join the group of people earning money? Here are five insider tips that every trader needs to know.

1. Choose a Methodology and Stick With It

Even before executing your first trade, you need to have a rough idea on what you will base your decisions on. In this sense, you must know what intel you will need to make the appropriate decision, like when to enter and exit a trade, which timeframes are the best (more on that later) and so on and so forth.

Some people are partial toward fundamental factors (foreign investments, inflation, unemployment rates, and other economic indicators), coupled with a chart, for executing a trade. Others prefer the raw numbers and stats of technical analysis.

But, whichever methodology you choose, make sure to be consistent and that it is adaptive, as there is no objective way to tell if one is truly better than the other. The most important thing to consider is whether or not your methodology and the strategies built around it are adaptive enough to keep up with the changing dynamics of the forex market.

Related: How Founder Of 27four Investment Managers Drove Transformation In The Industry

2. Always Calculate Your Expectancy

Expectancy is a formula that traders use to determine how reliable their trading system is. It involves going back in time to your previous trades (a journal will come in handy here), measuring how many traders were winners versus losers, and then finding out how profitable your winning trades were as opposed to how much money was lost after bad trades. The formula is as follows:

E=[1+(W/L) x P – 1, wherein W is the average winning trade, L represents Average Losing Trade, while P is Percentage Win Ratio.

3. Define Your Trading Goals and Build a Strategy Fitting of Your Personality

forex-tradingMost forex beginners come into the market thinking that they know everything that one could possibly know, without any sort of long term plan or concrete goals. This is the one mistake that eventually leads most traders to quit forex, because the reality of the market – and the trade itself – will hit them straight on sooner rather than later.

Therefore, the first thing you need to do is set a couple of goals. Start small and realistic at first – do not set yourself for winning a ridiculous amount of money in the first months because you will be sorely disappointed.

After setting the goals, you can start looking at various trading strategies and see which ones will help you achieve these goals and, most importantly, whether or not they are a good fit for your personality.

Some helpful questions to ask in this case are in the lines of ‘’Do I feel comfortable holding positions overnight?’’ or ‘’How much risk am I willing to assume for a given trade?’’, ‘’Am I more comfortable following a trend or betting against it?’’, ‘’Will I trade to gain some additional income, or full time?’’. Another equally viable method which will help you asses your strengths and weaknesses is doing a personal SWOT analysis.

4. Make use of Multi Time Frame Analysis

Regardless of whether you are a swing, day or long term position trader, it is highly recommended you always approach trading in a top-down fashion. This technique involves starting with a higher time frame chart and gradually zooming down to your current trading time frame chart. By doing this, you can get a ‘’big picture’’ view of the price action.

This tip is important because many traders commit the grave error of building their trading decisions around the time frame in which they are currently trading. For instance, when a trader sees a hammer candlestick pattern on a five-hour chart, they push forward with the trade without considering what might happen in the following time frame. What you are doing here is similar to a game of chess – you have to think a few steps ahead and choose your forex trading products and tools wisely in order to land a successful trade.

5. Do Not Use More Indicators Than Necessary

Indicators are simply visual representations of market realities that show things such as price movements, patterns and the like. As useful as they are, after trading for a while, you will soon realise that at some point they become quite counterproductive.

Many traders will tell you that the only indicator that you need is price, and everything else is there just to make one understand how the market got to that point. And since succeeding in the forex market is mostly about getting in on a trend before anyone else spots it, you can probably guess why over-crowding your monitor with indicators is not such a good idea.

Conclusion

Whatever some might tell you, forex is not a walk in the park. Like everything in life, it takes hard work and dedication to reach the point where you can state without doubt that you have achieved excellence. However, even the most dedicated and hard-working traders need a push in the right direction in the form of some lesser known insider tips that only traders will know. Hopefully, the tips in this article will provide you with the insight necessary to take your trading efforts to the next level.

Continue Reading

Company Posts

Time For An Alternative Investment Approach

The age of high-risk, high-reward thinking may be all but done, for now.

Fedgroup

Published

on

alternative-investment

For years the investment formula applied by investors has been to craft a diversified portfolio of assets weighted more towards equities. It made sense to build a foundation on safe, low-risk, low-return capital preservation investments and, depending on your age, allocate a relatively larger portion of your investable income into higher risk, higher return equities.

But is this justified in the local context? While global equity markets have enjoyed a decade-long bull run following the 2008-2009 financial crisis, consistently delivering 10% to 15% annual returns, the JSE has been a perennial under-performer over the last four to five years.

Volatility

Despite this fact, significant investor capital has continued to flow into local equities, either directly into stocks or via unit trusts, ETFs and endowments.  And now amid more volatile global economic conditions, where global indexes have come off record highs in early 2018, local equities are still projected to underperform in the medium-term as the market correction that many predicted gathers momentum.

Related: Investing In Wealth-Generating Assets

This shift is symptomatic of the volatility that currently characterises global markets as Brexit plays out, trade wars intensify, and widespread socio-political instability creates systemic economic risks. Yet, investors are still being advised to put their money into higher-risk vehicles.

Further compounding the issue is the fact that the country’s exchanges are dominated by a few large entities, which are all negatively impacted by the country’s dire economic situation. This means local investors must also contend with concentrated risk.

Outdated thinking

Despite these threats, many financial advisors have stuck to the traditional investment playbook by telling clients to “stay calm and remain invested in equities.” But given the prevailing market conditions, investors can realise better returns from investment opportunities that break from this conventional approach.

Returns from various fixed-rate investments, for example, have and continue to outperform equity investments, and do so without the associated risks.

While reducing risk is not necessarily a key concern for naturally risk-included entrepreneurs, when it comes to investing our hard-earned money we have the power to manage that risk. So, forget the old, pervasive attitude of “no risk, no reward.” It’s dated and, quite frankly, unwarranted.

The new reality is that fixed-term, low-risk investments have become among the best-performing asset classes — a fact that is tearing at the foundations of conventional investment advice. Entrenched beliefs must therefore be challenged, especially when investments that offer security can match or outperform high-risk options such as equities.

So, what are our options, given that fixed-rate investment options currently abound? Well, before diving into a vanilla offering from a bank, consider what your capital is secured against.

Forward-looking investments

forward-looking-investments

Banks generate their returns by lending out pooled deposits in the form of loans and credit. Some of this lending is secured, much of it is not. This can introduce risk into your investment, because the ability of debtors to repay debt is often compromised in a struggling economy, and bad debts will impact the returns that a bank can offer depositors.

Forward-looking secured investments, on the other hand, offer a set rate for five years and are secured against a variety of assets, like Fedgroup’s Secured Investment in participation bonds, which removes significant risk from the equation. These types of collective investment schemes are also regulated to protect investors.

Related: Balancing Business And Investment Risks

While it may not be prudent to completely disinvest from the local stock market, there is a case to be made to be more circumspect with future investments, matured investments, or that portion of your portfolio that is earmarked for reallocation. With this money, an investment that delivers both capital security and a high, fixed rate of return might well prove more attractive than the traditional wisdom of local equities.

The guaranteed, low-risk returns currently offered by fixed-rate investments have transformed these products from fringe options into mainstream investment vehicles that can no longer be ignored. With the chance to outperform the average equity investor, isn’t it time to rethink your conventional investment approach and consider the lucrative and, more importantly in such volatile times, secure opportunities offered by these alternative investment options?

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending