Staying Investment Focused in 2022

Staying Investment Focused in 2022

In January’s blog, we performed a deep dive into what 2021 looked like, what goals you achieved, what you failed at, and what goals you are still working on. If you actively write down your goals and vision, you have a greater chance of achieving them. Studies have found that by writing them down, you have up to a 65% more likelihood of achieving them as opposed to not writing them down.

When you plan your goals, it might be helpful to plan in 5-year increments. Planning how you want your life to look like in 5 years; and what goals you want to achieve in the next 5 years. For example, you might see yourself in a new home, launching a new business, or sitting on the veranda of your new holiday home in 5 years’ time. In order to achieve these goals, what steps would you need to take now to achieve them? What are the steps you need to take this year? In the case of buying a new home or holiday home, you will need to allocate a portion of your budget towards saving for this goal. In the example of starting a new business, you will need to allocate a portion of your free time to write the business plan, determine the feasibility and source funding.

Goal achievement requires that you break them down into smaller achievable steps, regularly tracking them, and holding yourself accountable. The world is currently in turmoil and you can easily get distracted, and lose focus on what you are aiming to achieve. Unless you actively set your goals, in manageable increments, you will get lost in all the upheaval, and achieve none of them by the end of 2022.

Specifically, reflecting on the turmoil in the Ukraine, how will this affect our ability to achieve our financial goals in South Africa? The first is the price of fuel, which has already climbed to record highs last year. Economists predict another fuel increase in April. The coal price is also set to increase, and with Eskom’s reliance on coal, this will see its base cost rise. Eskom has recently announced that they may not be able to pay for emergency diesel to keep their turbines going. Eskom is set to increase its tariffs on 1 April 2022. South Africans will be hard hit by the fuel price increase, affecting all goods and services – especially food prices; as well as the increase in electricity costs, and more load shedding.

In the budget speech, Government announced a clampdown on spending and helping of SOE’s. They are determined to reduce our debt levels, increase investor confidence and change our sovereign credit rating from non-investment grade to investment grade. But as many commentators argue, we cannot see Government not helping Eskom. Without Eskom, we cannot operate and function as a country.

So where to invest in the investable universe when it comes to our financial goals for 2022? Experts argue that South African equities will continue to perform above CPI as we are yet to see the top of the mining cycle. These cycles can run between 5 to 15 years and experts say we can expect good returns locally as commodities continue to give great returns. If we look at the global market indices, the forward price per earnings rate; emerging markets are cheap. In particular, SA small-caps, mid-caps and JSE ALSI are all set for good outperformance. S&P500, NASDAQ and Russell 200 are expensive but should form part of a portfolio for diversification. “It would be foolish to have all our eggs in one basket given the high political risks. It is sensible to diversify but given the current South African valuations and current global macro environment, is it sensible to allocate a portion of your assets to South Africa.” Says Piet Viljoen of Counterpoint Asset Management.

We have an open economy so we can invest anywhere in the investable universe, either through voluntary or through compulsory investments. South African equities should yield great returns but geographical diversification is key when investing. Asset diversification is also key and not hiding in cash even when local and offshore markets are turbulent. Thus, from a financial goals perspective, the key is to understand your investment time horizon and the associated risks with the risk profile. The shorter the investment period, the less risk and lower expected returns. Long term investments are associated with more volatility and greater returns.

In order to achieve your goals, write them down; set your budget; determine your savings goals and understand the risk associated with your investments. One thing is certain – uncertainty is now part of our lives and in order to achieve our goals, we should manage what we can in our lives and leave the uncontrollable.

Posted in Blog, Financial Planning, Investments, Tips.