You are poorer, but no need for panic
South Africans’ net wealth decreased in the third quarter of 2018 as they took on more debt and their assets diminished in value
Instead of panicking, investors should be increasing their exposure to the stock market, says investment guru Warren Ingram, despite a report showing a significant decline in the real value of households’ assets.
The latest South African Household Wealth Index, a joint report by Momentum and Unisa, shows that the net wealth of local households decreased by almost R132bn in the third quarter of 2018 compared to the previous quarter due to a decline of R122.4bn in the real value of households’ assets and an increase of R9.3bn in the real value of outstanding debt and accounts.
“The decreasing value of household assets can be ascribed to the declining value of their financial assets, which mainly consist of the value of their retirement funds and investments,” the report states.
“At the same time, the increase in real household debt was driven by instalment sales, personal loans and credit card debt.”
The authors point to both international and local pressures contributing to SA’s poor stock market performance: “The real JSE all share index declined by an annualised 17.3% in quarter three of 2018 compared to quarter two of 2018, while the real all bond index was down 2.4%.”
The report lists US interest rate increases, trade tension between China and the US as well as a messy Brexit saga among the global reasons for the outflow of international investments from “riskier” destinations such as SA. SA's own goals include debates around changing the constitution for land expropriation without compensation, Eskom's spiraling crisis and political shenanigans that delay structural reform.
The report also warns that the fourth quarter of 2018 could be heading in the same direction.
“Preliminary estimates point to a further decline in the real value of household net wealth during quarter four of 2018 as their real asset values declined even more, mainly because of share prices tumbling over this quarter, while real house price growth remained negative. This means that real household net wealth in all likelihood declined again in 2018,” the report states.
Ingram, a financial adviser at Galileo Capital, says the news that the country's wealth has decreased is shocking, and a wake-up call, but it is certainly not a time for investors to start panicking or doing anything rash.
Working with a skillful, qualified financial adviser will ensure that you’ve planned for any losses.Warren Ingram, Galileo Capital
Forget the rear-view mirror
“[News such as this] is about the recent past and has very little impact as most serious investors are forward-looking and in it for the long haul.
“Getting fixated on the recent past is like driving a car and looking in the rear-view mirror. By doing this, you are missing the trick,” he says.
Ingram says all South Africans should view it as a wake-up call to ensure you have a proper game plan for your investments.
Scathing in his take on the government's complicity in SA's weakening financial situation, he says: “We are constantly told that government will create jobs, provide free education, housing and services. It is frankly impossible to do so, and we need to realise that the only way we are going to improve our lives is by taking responsibility for our future.
“We need to create our own jobs, plan to pay for our own houses, quality education and health services. Government has proved wholly incapable of helping most South Africans,” he says.
Back to the basics
To take charge of your own financial wellbeing means you need to go back to basics, says Ingram.
"It starts by developing a sound financial plan for your money, including reducing your debt, increasing your savings and limiting your spending,” he says.
On the latest decline in stock prices, he advises: "Review your asset allocation. In other words, how much money you have in shares, bonds property and cash. All of us need a minimum of 35% of our investments in shares and if you have less than this amount, it is time to increase your allocation. The JSE is offering good value now and we should be buying shares, not selling at current levels.”
If you have spare money, you should increase your allocation to the local and international stock markets, he says.
Failing to plan is planning to fail
As certain as the market will climb, so too will it go through periods of loss. It is a long-term game, says Ingram.
Working with a skilful, qualified financial adviser will ensure that you’ve planned for any losses.
“Great financial planners will make you only one investment promise when you start working together — i.e. that you will lose money periodically. A sound financial plan should include the possibility of a stock market crash of 35% in one year.”