Money Matters
Issue 45

October 2022 / November 2022

Avoid making your investment portfolio your hobby – doing so will be detrimental to your long-term outcome. We have seen many examples of clients who ‘stalk’ their investment values. This can be true for certain clients who have a difficult time adjusting to retirement and utilize their newly acquired extra time to ‘watch’ their portfolios. Sadly, current investment administrative platforms allow for clients to access their values on a daily basis – a practice that we as financial advisers strongly discourage due to the destructive impact it has on an investor’s outcome and psyche.

Human emotion is one of the biggest destroyers of wealth and investors find it really challenging to be objective and not be swayed in the moment. Peaks and troughs are part and parcel of the investor experience and investors should expect corrections and pull backs in their portfolio. Witnessing this on a daily or regular basis creates unnecessary fear.

We know from the outset, before the investment is made, that markets zig zag up over time. We know that portfolios need to be measured over the correct measurement period. This could be 5 years for a balanced fund and up to 7 years for an equity portfolio.

Nothing meaningful can be interpreted into the value of your investment until the appropriate measurement period is up, so why look? Looking at your values over short periods of time serves no purpose other than to create angst.

Our role as your financial adviser is to help you remain absolutely focused on your long term investment strategy so that you can achieve your goals and objectives.

If you have any concerns, remember that we are only a phone call away.

We don’t like uncertainty. War and politics introduce uncertainty that affects us. The discomfort caused by this uncertainty could lead us to make poor investment decisions that do not serve our personal interest. Let’s reflect and consider the true impact of war and politics on the markets based on the evidence of history.

The effect Wars have on the Stock Market
Wars fought on foreign territory tend to be mildly positive for economic growth, whereas wars fought on domestic soil quickly destroy the economy. For a country that is mired in a war on its territory, the costs are severe. War in your own country has dire consequences and impacts GDP in a big way.

Wars over the past 7 decades were fought in smaller countries and not between industrialised countries. If you were invested in any of these smaller countries, you would have been affected by the impact of war. If not, war was a non-event from a market perspective.

Russia-Ukraine war is being fought on Ukrainian soil and will have a detrimental effect on their infrastructure and economy. The Russian economy accounts for just 1.7% of the global GDP but it is the second-largest oil exporter in the world. Both the European economies’ energy needs, and North Africa’s food shortage are being indirectly impacted by this conflict which contributes to rising inflation. This conflict adds pressure on energy prices that feeds into global inflation. This conflict is also not isolated from the current geopolitical fault lines that are unfolding.

If one looks at the US, counterintuitively the markets have outperformed its long-term average at a lower volatility.  Only during the Vietnam war did the market underperform its long-term historic average. Even so, it still outperformed bonds and cash.

Bottom line – tampering with your long-term asset allocation due to the fear of war has been a bad decision historically.

Politics
There’s a complicated relationship between political conditions and the stock market. When considering whether politics impacts the market, it is important to differentiate between short-term and long-term effects.

Politics typically has an indirect effect on the markets, and it tends to be more short term in nature. Markets do not like uncertainty and political uncertainty has an impact on markets, but this is usually short-term.

What is greylisting?
The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. Countries who fail the evaluation are greylisted. Being on a grey list indicates that a country’s flaws pose a risk to the global financial system. Such a country faces increased scrutiny and unfavourable economic repercussions for its trade and business dealings with other nations.

In October 2021, FATF published an evaluation of SA’s anti-money laundering measures and found that South Africa was partially compliant with or noncompliant with 20 of the FATF’s 40 recommendations. This assessment uncovered issues mostly associated with state capture and the nation’s incapacity to prosecute criminals. At its meeting in February 2023, the international organization will determine whether to greylist South Africa in this regard.

What will happen if we are greylisted?
If this happens, it will be necessary for other countries to do more thorough due diligence on South African citizens and enterprises, as well as more frequent and intrusive examinations for the risks associated with anti-money laundering and terrorism funding.