In turbulent times, it is important to step away from the noise and to consider how various asset classes will perform in the future.
Graham Tucker, portfolio manager of the Old Mutual Balanced Fund in Old Mutual Investment Group’s MacroSolutions boutique, pointed me recently to the latest edition of Long Term Perspectives, a study compiled annually by him and several of his high-powered market analysts.
A superb product, it scrutinises the performance and behaviour of select asset classes over the past 87 years or more.
In no particular order, these are some of the analysts’ main insights:
INFLATION IS YOUR ENEMY: If you hold R10 000 cash today at a 6% inflation rate, the sum will be worth only R5 584 in 10 years, and R3 118 in 20 years.
TIME NEEDED TO DOUBLE YOUR MONEY: Using each asset class’s long-term average return, it will take you 10 years to double your equities’ real investment value; 41 years to double your SA bonds’ real value; and 90 years to double the real value of your cash holdings.
EQUITIES ARE NEEDED TO GROW LONG-TERM WEALTH: The main reason many investors prefer cash to equities is the fear of losing money. The reality, however, is that during the past 87 years nominal returns of equities grew an average 14% a year, South African bonds 7.8% and local cash 6.9%.
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