The last few years have been a roller coaster ride for many investors both locally and offshore, where the last 36 months has given us the best and worst returns all in one go. Eg. December being the worst month in almost a decade for all global markets, these very markets rallying to their best returns in the following 3-5 months, and then simply losing all its value over the May and June months once again.

These returns have come in very short bursts and has led many investors to question the market and its ability to really provide enough protection against inflation in the long run.

Over the next few articles I write I will be covering a few short pieces on the different fund returns in the local and offshore market where I compare household funds used in many portfolios across the market in South Africa over a 3 year and multi-decade period. In this article I showcase the returns and rand values investors would have enjoyed over the relative periods and give some thoughts on how investors can compare short term volatility with their long-term strategies.

Without being to unrealistic I have gone back almost two decades to the year mid-2000. Many investors have had the chance to invest over this period, and if not themselves, their parents would have then at least also had the opportunity to invest for their children’s futures. There are no excuses here.

I have been a visual learner all my life and I find most people relate better with visual presentations – A picture tells a thousand words. Here is a look at what investors have achieved over a 3-year period.

 

With the highest return sitting at 7.60%, it can be very difficult to argue which choice would have been better. The returns for the last 3 years above show a very dramatic story of how local investors have not been paid for taking any risk in the market (Investing in the JSE directly vs Cash). This clearly shows that many investors would have been just as “well off” in money market funds as compared to the JSE itself or equity type funds. Although still better in the equity market (JSE and Equity Funds), the CPI rates come very close.

But there is always a bigger picture – Investors always seem to compare money market returns vs the market (JSE) when it suits them, they never really seem to understand how this fits in when comparing the returns over comparable periods, so these articles are here to give you some perspective. It’s all in the numbers!

With all this volatility, is it really worth it when trying to invest for the “long term”?

Have a look at the returns below over the last 19 odd years in the very same funds used in the 3-year picture above.

 

The pay off in equity funds or the JSE itself show a very different story. With the highest return sitting at 17.21% (Allan Gray Equity) vs the lowest of CPI and CPI +2% sitting at 5.58% and 7.59% respectively.

Although the Prudential & Investec balanced funds sit below the JSE, they still provide a smoother ride when returns get a bit more rocky and also provide a much better return profile than the money market and Income funds (which are commonly used for investors when things get too uncomfortable in the equity market).

Here is the Rand pay off over the same period when starting with a theoretical R100,000:

For comparison purposes I have used the JSE, CPI, CPI+2% (a good comparison for Money Market & Income fund returns), Allan Gray Equity & Balanced, Investec Equity & Managed, Prudential Equity & Balanced. I have excluded any boutique managers and passive fund managers that have sprung up more recently simply because their returns do not go back as far as the longer standing funds used in this graph. We can tackle this in other articles.

It’s all about perspective, so take a short- & long-term view.