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21 Rands and sense Should you be investing locally? By Philip Bradford, Head of Investments, Sasfin Wealth 30 years ago two rand was worth approximately one US dollar. Currently to buy one US dollar, you need around R13.50. This means that if you had invested R100 000 into US dollars 30 years ago it would now be worth about R675 000; a gain of 575%! So in hindsight it was an obvious decision to take all of your money out of South Africa. Or was it? Unfortunately, as with most things in life, it is not that simple. The above calculation ignores the “8th wonder of the world”, compound interest. In fact, when including the interest in the two currencies the US dollar cash investment would now be worth R1 822 000 while the rand cash investment would be worth R2 530 000. So am I trying to suggest that you should keep all your money in South Africa? Definitely not. In fact the above scenario looks very different over the last 5 years where, because of sharp depreciation of the Rand, a simple investment in UD$ cash would have returned 88.6%! Therefore when someone makes such an important decision with their life savings, it is important to consider the facts: “Africa is not for sissies” From a risk perspective it doesn’t make sense to leave all your wealth in one country, even if it doesn’t have the political and economic volatility that we experience. The only necessary certainty in investing is diversification. It has nothing to do with patriotism; it is simply prudent to diversify across a variety of investments, currencies, companies and countries. “The world is your oyster” When it comes to investing in shares, why limit yourself to one local company if you could rather buy shares in some of the best companies in the world? The world is filled with opportunities and investors are now able to easily invest in a large variety of investments across the globe. This is particularly true of stock markets where it is now easy for our clients to access the biggest and best companies in the world from one account. In the past if you wanted to invest in oil, luxury goods and beverages you could only really buy Sasol, Richemont and SABMiller. Now you can also consider alternatives like Shell, LVMH (Louis Vuitton - Moët Hennessy) or Diageo. These global leaders are not only accessible, but are often cheaper than local alternatives. There are also industries and related companies that are not available in South Africa. Companies such as Google, Amazon, Microsoft and Apple don’t have peers on the JSE. These are some of the most valuable companies in the world and should be considered by any investor. In addition, the companies that are listed on the JSE are ever more expanding their operations internationally. It is estimated that more than 70% of the earnings of companies listed on the JSE are international. This means that even a “local” investment on the JSE is mostly “offshore”. Home town advantage There is, however, one advantage that South Africa has over first world countries which is ironically as a result of our relatively high inflation and political and economic uncertainty: high interest rates. Swiss investors that earn negative interest on their cash are envious of our local bond interest rates of over 8%. Local listed property companies can also offer good yields and better growth compared to foreign property equivalents. This is mainly because the local lease increments are linked to inflation which is much higher than in the developed markets. Therefore, carefully-selected local property companies can offer very attractive yields. In conclusion, it makes sense for South Africa investors to invest a portion of their assets in local bonds and property when income is required, where returns of over 10% are currently possible. However, when looking for capital growth they should investing in the best companies and industries in the world. Philip Bradford, Head of Investments, Sasfin Wealth