How to invest in uncertain times

The worldwide economic growth is waning while financial markets are struggling to keep head above water. Stock exchanges have been in the red since the beginning of the year, something that has not happened in many years. In spite of this, it seems that many of the world’s financial markets are still being overvalued.  A further fall and even a dramatic downturn cannot be excluded.

Locally things are looking sad as well! The drought, rising interest rates, the possibility of a downgrade for South Africa, and a possible recession make life even more uncertain for investors.  Furthermore, the Namibian Dollar has become so weak that no one is certain if it still makes sense to invest abroad – what if the Namibian Dollar strengthens again?

Given all the uncertainty and risks, today’s investment environment is a dangerous place that requires nerves of steel.  What is one to do – one’s money has to be put somewhere?  Relax, kick off your shoes and lie back in your comfy chair – there is a solution!

First things first, do not panic.  Investment decisions are not made lightly, and to impulsively decide to take all of your money out of the stock exchange or out of the country, probably has more to do with your emotions than your cognitive mind.  Stick to your current investment plan, and if you do not have one, get one!

Here are a few tips:

• Always ensure that your investments are well diversified. This means that you do not invest in only one kind of asset (such as property), and it further means that you also should not keep all your eggs in Namibia.

• Ensure that a lot of your assets are abroad, without wanting to take everything out of Namibia just because the Namibian Dollar is currently weak. Take it out gradually, because the Namibian Dollar might strengthen again! Furthermore, the bigger your estate, the more you should invest abroad.  This is simply due to the fact that more investment opportunities exist abroad.

• Accept that the financial markets can be extremely inconsistent. It is a given and an inevitable risk, accept it.  Even though this risk can be partially managed, it is always present, so relax.

• Under no circumstances are you allowed to take an institutional risk! If you lose all of your money in a Ponzi-Scheme, then it is probably your own fault.  Make sure you know with whom you are doing business, make sure you understand what you are investing in and do your homework. It is your money and your responsibility!

• Invest in products that meet your risk profile.  Most investors want the best return on their investments, without due regard to the risk of an investment.  Determine what your risk profile is and seek out a product that meets your needs, and not the other way around.  If need be, make use of an advisor if you are not able to do this yourself.  Incidentally, there is nothing wrong with taking a risk, but you have to be ready for it.

• If, for whatever reason, you are dissatisfied with your investments, then you are likely not investing in the correct product, or you do not understand the risk, fix it!

If the Namibian Dollar’s weakening, or the decline on the stock exchange, or the rising interest rates, or anything that negatively affects your investment does not worry you, then you know you have made the right decisions.  You know that the markets rise and decline, you know that your investments meet our risk profile, and you know that the people that are working with your investments know what they are doing.  Under such circumstances you may kick off your shoes.

Dawie Roodt is the Chief Economist of the Efficient Group. He may be contacted at dawieroodt@efgroup.co.za