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Irrational decisions during downgrade can trip up investments

Apr 07 2017 14:42

Cape Town - The impact of S&P’s long-term foreign currency rating to sub-investment "junk status" will be felt gradually and South African retirement fund investors are urged to remain calm and avoid making irrational investment decisions during the "time of turbulence".

This is the message from Steven Nathan, CEO of 10X Investments, who added that the downgrade will likely result in higher inflation, higher interest rates and ultimately lower economic growth,  

He said the downgrade has compounded uncertainty in the local market and resulted in the continued weakening of the rand.
 
"It is important that retirement investors follow an appropriate long-term investment strategy that has a high probability of weathering all expected conditions to achieve the ultimate savings goal," said Nathan.

READ: Downgrade is wake-up call for SA to revisit key economic policies

“Setting the strategy upfront serves as a compass when the market is in turmoil, as a way to keep sight of the end goal, and a reminder to stay on course.”   
 
The bottom line, in his view, is to ignore the short-term volatility. If a portfolio is adequately diversified, it is designed to weather these inevitable, but unpredictable short-term setbacks.

“In a well-diversified portfolio, while some parts of the portfolio take a knock, others will benefit from a weakened rand, and others will not be affected at all," said Nathan.

He does expect longer returns from South African assets to be lower so long as a sub-investment grade rating is maintained.

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So, the worst has finally happened. S&P and Fitch officially downgraded SA to junk status following the ill-timed Cabinet reshuffle.
 

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