The army of chartered financial analysts, as much slaves to their textbooks as any follower of Karl Marx, will be bemused by the markets in 2018. According to their set texts, higher risk should mean higher return. Yet unless there is a dramatic recovery in the JSE by midyear, the five-year nominal equity returns will be zero. That might not sound too bad until we’re reminded that in real terms that is a capital loss of 5% a year or 23% cumulatively. It would be human nature to think it can only get worse, and to hide for safety in cash and even bonds. They undoubtedly have a role to play in any portfolio but the long-term case for equities is strong, unless political circumstances make shares worthless, such as Cuban assets in the 1950s, Russian shares before the revolution or German shares going into the 1930s. So far it looks like financial markets still have a place in the SA developmental state. Coronation’s unit trusts are a good proxy for the risk curve as they are made up of...

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