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Changing landscape for our investments

Last weekend, I had the opportunity of driving down to Cape Town to pack up, after acknowledging that my daughter was not going to be returning to University this year. Under normal circumstances, a three thousand km round road trip would hold no appeal whatsoever, especially in three days, but following being in lockdown for this extended period, the thought of getting out was quite attractive. Watching the sunrise and sunset three days in a row was spectacular, ranging from the Berg to the Karoo, Cape Town and then Gauteng. We even caught the tail end of the snow on the Hex River mountains, about an hour outside Cape Town. We are spoilt with a beautiful country, something that is so easy to forget as we are all confined to our homes and the somewhat negative daily news.

This past week we saw interest rates being dropped even further, now down 3% this past year, bringing them to the lowest rate in five decades. Quite favourable to anybody who has debt, as this means that each household will have more disposable income. This low-interest rate puts pressure on those people who are living off savings, which is the majority of our clients. However, it’s important to note that inflation is 2.1%, and it may be difficult to comprehend increasing your income by only 2.1% for the next 12 months. We will discuss this with you in your review meetings. Most of our clients are in investment strategies targeting 3 to 5% above inflation. This now seems like a meagre goal, when only six months ago you could achieve a 7% return in cash. For possibly the first time in most of our lives, we find ourselves in a situation to which most people living in first-world economies are well accustomed—both a low inflationary and interest rate environment. We have often shared that the risk of investing offshore is that the returns are low, relative to South African inflation. This differential has now reduced significantly creating an opportunity to expose your assets to a more globally diversified investment portfolio.

Another argument for increasing offshore exposure is the substantial country risk that comes with South Africa. Many economists have mentioned that we were in a crisis before Covid-19, which means we are in a very desperate position now. Our various investment consultants, who manage the asset allocation of the majority of our portfolios at Chartered, are gradually moving away, where possible, from Reg 28. Reg 28 is a piece of legislation that determines how retirement funds must be invested in SA. There are two significant benefits to not following the Reg 28 guidelines. The first being that you can invest more than 30% of your investment offshore, and the second that your funds fall outside the ambit of the much spoken about proposed prescribed assets guidelines. We will be sending out a more detailed communication later this week on the increased offshore exposure.

Continue to look after yourselves during these very uncertain times. Your health is one of your greatest assets. We are here for you and happy to assist wherever we can.

Warm regards