There has been a lot of noise and unpredictability in the market lately with frequently asked questions such as, “Are share markets overpriced? Is there an international bond bubble? Are interest rates falling?” This uncertainty has understandably generated reasons for concern amongst consumers.
The expression “Cash is King” is predominantly favoured by investors when market prices are high. As a result, millions of Rands have been invested into Fixed Deposits. However, it is important to keep in mind that during tough times and volatile markets, flexibility is key. When investing in a Fixed Deposit, you are typically boxed for a period of 3 – 5 years. The interest gains associated with this type of investment are fully taxable at your marginal tax rate, thus reducing your net rate of return (Return after taxes and fees).
Nowadays, there are low-risk products available that are more tax efficient, offer competitive, flexible returns and are completely liquid, meaning that you can disinvest within a day or two. For example, Multi-Asset Income Funds invest in multiple asset classes (cash, bonds, property and shares) with the majority of the fund split between a combination of cash and bonds in order to avoid volatility. A major advantage is that the fund is actively managed and will be invested in the asset classes that provide the best return (currently cash and bonds), given any economic environment. The average return over the last year for the top 10 funds in this sector was approximately 10% with most of the funds not having a single negative month.
In summary, flexibility is crucial in a well-diversified, conservative portfolio as this allows individuals to capitalize on greater opportunities as and when presented. If you are interested or would like to find out about investing, please contact us.
Stephan Steinmann CFP®