This decade has certainly caused a lot of angst among retirees and those approaching that landmark. For those still contributing, they have enjoyed the benefit of steadily building their retirement fund and, although they may not have realised it, drops in market prices have actually benefited them: the items purchased with the same monthly contribution have effectively bought them more of that item. These investors become disheartened when they see their Rand value has dropped, even though they have made a payment into the fund. They have seldom, if ever, focused on the number of units in their basket. Scrutiny of unit holdings will reveal an increased number of units which, over time, will most likely increase in value and thus make the overall value that much greater.
One cannot normally choose when to retire, with events such as retrenchments, company buyouts, ill health or a host of other occurrences all playing a part. Sometimes your retirement may precede events that occur far away geographically but which have a massive impact at local level. Consider those who retired just before the Global Financial Crisis of 2008, the market slumps of 2015 and 2018, COVID in 2020, the Russian invasion of Ukraine, or the recent impact of Liberation Day in the US and the current US and Iranian military situation. In the last-mentioned event, if a person has recently retired and chosen a living annuity to fund their retirement, values most likely dropped enough to cause concern. Even a low-risk, income-generating range of unit trusts would have seen a significant impact on capital value over the past two months.
Taking the above into consideration, a portfolio may well have had some exposure to offshore assets for the potential growth of assets, on the assumption that the Rand would weaken over time, particularly as our inflation rate is generally higher than that of developed markets. On this factor alone, a portfolio would have “lost value” due to the weakening of the US Dollar against the local currency. Currency swings can make one dizzy, with a large loss or gain in the Rand happening in the space of a few days, and this, of course, impacts on your unit pricing.
One should also bear in mind that geopolitical uncertainty following military operations and stances taken by leaders of major powers usually has an immediate impact on equity market values. Panic sets in, causing investors to offload assets, which then causes algorithmic trading models to trigger further selling, which causes investors to sell even more, and so the spiral continues until a model or fund manager decides the time is ripe to buy again, triggering an upward turn.
Through all of this, the units in your portfolio would have remained fairly stable, but the market value would most definitely have been affected.
Though not always the case, the hardest impact is usually felt within the first four to six weeks of such events, before the market digests what is happening and the pendulum begins to swing the other way.
Holders of income funds would also have been hurt in recent times when overseas investors in our bond markets were spooked by local political issues, or took the “flight to safety” approach toward developed markets, even where returns are lower. The sale of bonds by these investors causes a glut of availability and, like any item where excess in the market occurs, the price will drop.
Again, focus on the unit holdings in your portfolio instead of the Rand value.
Lastly, holders of income funds should not panic when they receive their quarterly statements, usually about a month after the end of that quarter. The underlying assets of income funds distribute quarterly, most notably bonds, and this causes a drop in the price of the unit, although units may also have to be sold to meet costs (usually not a significant number). If you are drawing an income and paying fees that are less than the distributions from the assets in your portfolio, the excess income is used to purchase more units, which gain in Rand value until the distributions take place again after the next quarter.
In summary, before you become anxious when your next quarterly statement arrives: analyse the number of units, compare that to your last quarterly statement, and you may very well find that you are in a better position than before, as long as the income drawn is less than that which is generated.
