In this economic review, we focus on events that moved the market in Q4 2020. In hindsight, 2020 wasn’t supposed to be this way. Capital markets expected a bright start to 2020, boosted by the sight of a US-China trade deal. But instead, 2020 saw the emergence of the deadly Coronavirus and containment measures which left the world on the cusp of a deep depression.
How did global equity markets react to the second wave of the pandemic? It rallied by yet another 14% over the quarter (as measured by the MSCI Global Equity index in US$). This would have been a great annual return for equities for any normal (full) year, but to have that as a quarterly return – and that off a record high base during very uncertain and risky circumstances – is nothing short of astounding. Global equity markets seem squarely focussed on the recovery angle associated with the introduction of vaccines and the possibility of continued stimulus and have thus far shrugged off any risks associated with renewed flare-ups of the pandemic.
In the local markets, all asset classes offered positive returns. Nominal bonds and inflation-linked bonds (ILBs) returned 6.7% and 5.5% respectively, which handsomely outperformed the diminishing returns available from
cash, validating our preference for these asset classes. But these came nowhere close to the near 10% from local equities or more than 20% from local listed property.
Fortunately, fiscal and monetary stimulus across the world boosted global markets in 2020, with encouraging vaccine trial results and Biden’s victory in the US presidential election providing an end-of-year rally, despite a second wave hitting the globe. All in all, last year certainly defied expectations and was, quite unexpectedly, a good year for portfolios. For investors, 2020 was the year of the great escape and dodging a bullet similar to that of the 1929 depression.
What can you do?
I encourage you to follow a “Goal-based” investment approach.
The purpose of this approach is to ensure that you are invested in the right investment vehicles and funds for your different goals.
A Practical Example of an investment portfolio:
- Emergency Fund: R 20 000 lumpsum investment through an Unit Trust in a Money Market Fund
- Tertiary Education for children: R 1 000pm investment through an Endowment in a Balanced Fund
- Capital Growth: R 50 000 lumpsum investment through a Sinking Fund in an Offshore Fund with a Guarantee.
- Retirement: R 2 000pm investment through a Retirement Annuity in a Moderate/Moderate-Aggressive Wrap Fund.
It is not wise to make investment decisions based on the latest economic review. If you want to avoid unnecessary risk and rash decisions, create an appropriate investment strategy.
Steps to creating an investment strategy:
- Determine your investment need
- Choose an appropriate investment vehicle
- Determine your risk profile and required return
- Choose a fund that will provide you with the best chance of achieving your investment goal.
At TVC Wealth & Health Managers, we specialise in independent financial advice in all financial needs.
This enables us to provide the best solutions and look at your entire financial portfolio.
Before investing for capital growth, ensure you have the following in place:
- Medical Aid & Gap Cover
- Sufficient Risk Cover (Life, Disability & Severe Illness Insurance)
- Sufficient Short Term Insurance (House, Household Content, All Risk & Car)
- Emergency Fund (3-6 months’ salary in a low-risk fund)
- Tax-Free Investment (R 36 000 per annum)
If you still need to address any of these financial needs, let’s set up a virtual meeting to address these needs.
Contact us to set up a meeting.
Disclosure: This article is posted to inform readers and not provide financial advice.
Sanlam Economic Review: Events that moved the market Q4 2020
PPS Economic Review: PPS Talking Points Q4 2020
Sanlam Invest: Investment Strategy Q4 2020