Prudent advice for investors, financial planners

Daan Schoeman Financial Planning Solutions recently hosted a seminar for clients and colleagues in the city and invited Prudential Head of Retail Sales, Hamilton van Breda, to speak to guests about investment in uncertain times.
DW Schoeman, Manager and Financial Adviser at Daan Schoeman Financial Planning Solutions said the seminars are hosted at least twice a year and offer opportunities for people to discuss the state of the economy and to find ways of improving their portfolios.
Van Breda started off by warning guests to not be fooled by negative news headlines. “Bad news sells. South Africa has been downgraded to junk status, but we are still better off than in 1994,” he explained.
He advised that investors should stack the odds in their favour by buying risk premiums and demonstrated how risk episodes could be exploited. “During Nenegate bond yields blew up because investors took their money offshore when the Rand was at its worst. While the country is still experiencing economic problems today, bond yields are stable,” he said.
Comparing South Africa to its peers on a global level, Van Breda showed that it is a global trend for bond yields to blow up just before a downgrade and that this was indeed a good time to buy, because yields will drop after things have calmed down. “Three things influence bond yields: short term investment rates, inflation and the state of the Rand. High bond yields are an indication that investors do not have confidence in a country’s economy,” he said.
“Bond yields are quite predictable, but the same cannot be said for cash investments as these are directly influenced by monetary policy.”
Van Breda explained that people tend to look backward to previous experiences instead of looking forward by using scientific predictions. “You have to look at long-term returns before comparing bonds and cash investments. Don’t save yourself bankrupt,” he said.
According to Van Breda, it is prudent to buy stock when it is at its cheapest and sell when it is at its highest. Yet, investors often do the opposite when the market makes a downward turn, changing to cash investment when it is actually the best time to invest in equities.
He concluded the seminar by saying that the best professional investors are those that have developed a robust investment process. Advisers should align the investment horizon of their own processes with that of the funds that they have selected and stay invested throughout the various market cycles.

Story and photos: MARKI FRANKEN
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