Investors need to avoid market jitters and stay the course
By Rishay Lalla
The recent inflation spike coupled with volatility on the parallel market, low interest rates and a hazy economic outlook are just a few ingredients of what seems to be a rather distasteful beverage being served to investors in Zimbabwe.
Media coverage has raised toxicity, fuelling anxiety levels through providing endless, sometimes contradictory, commentary on what actions individuals should take, the prize enigma being whether “this time is the same or similar to the previous woes of 2008”.
For one, the character of Mr Market (the Zimbabwe Stock Exchange) has been rather different. Volatility has been fuelled by strong perceptive emotions by investors on the bourse. Being wise to the corrosive nature of currency depreciation has resulted in significant speculative behaviour on the stock market, thereby elevating inherent risk levels.
The question now for some is whether to cut losses and get out or perhaps hold onto stocks, maintaining an investment as a buffer or hedge.
With the stock market having risen more than 50 percent this year, just how affordable are these stocks for a local investor whose salary has not increased by this much?
It has become increasingly important, therefore, to ensure that, if one is investing on the stock market, the right stocks are being held in a portfolio.
It is not enough to secure your hard-earned savings by buying “good and strong” stocks. A sure way to lose value is by purchasing great stocks at excessive prices. Without realising it investors can be stuck in a pattern of panic buying over-priced stocks for fear of losing more value. How does one understand value in this opaque economic climate?
Gains for seasoned investors are not won on daily market oscillations but rather from growth experienced over many years. The economy will eventually settle. So, what’s the right move in this tumultuous environment?
“All intelligent investing is value investing acquiring more than you are paying for. You must value the business in order to value the stock,” advises American investor and businessman Charlie Munger.
Staying the course involves investing in quality stocks at good prices. It negates the need for stock market gambling. Invest in profitable companies with good corporate governance, value addition and potential for growth. Stock prices will eventually reflect the true value of the underlying companies. It is best to own shares in a few select companies that will help to build wealth over time.
This, though, is only one part of the investing equation, since it focuses on just one investment class. We have all heard of the idiom ‘don’t put all your eggs in one basket’. Balancing one’s investment, however, can be quite daunting, especially where you cannot see the price of the investment every day or where a property investment is not visible or listed on a stock exchange.
Fortunately, Zimnat Asset Management is equipped with the right people, skills and tools to safely navigate investment of your hard-earned savings or retirement funds. Accurate interpretation of information by experienced professionals provides a clear advantage in the investment world.
ZAM’s investment services go beyond stock market investments. They include bonds, money market and alternative investments as well. The research team keeps up with market trends and financial news to ensure that clients’ strategies remain on track to achieve long-term growth. This is all part of Zimnat’s endeavour to make life better.
Economic Developments and Impact on Financial Planning
Zimbabwe is going through an economic transformation arising out of the political developments of 14 November 2017 which saw the change of leadership in the Government. The new administration has set goals to achieve economic stability through:-
• aggressive international re-engagement
• addressing the fiscal deficit as advised by the IMF
• re-building public and investor confidence as a short-term priority target
• amnesty on foreign currency repatriation issued to both individuals and corporates who had externalised foreign currency.
The country’s economy is facing structural challenges from high informality, weak domestic demand, high public debt, weak investor confidence and a challenging political environment. The liquidity crisis in the country is a manifestation of structural deficiencies and distortion in the economy. Inflation keeps rising and loss of value is rampant. This turbulent environment makes financial planning difficult.
Implications for financial planning
Financial planning entails the wise management of your current finances and assets to enable you to achieve your future personal goals and dreams whilst at the same time negotiating the financial barriers that inevitably arise in every stage of your life. Your financial plan should cover the following:-
• Risk Insurance policies - these policies are for risk management purposes for the protection your investments, property and your life. The parallel currency exchange rate gives rise to mismatch between your “transfer replacement value” and your insured amount such that you may not be adequately covered at the time of a loss. It is therefore important to quarterly review your risk insurance policies to ensure that you are adequately covered.
• Estate planning- this entails the use of both testamentary and inter-vivos trusts, wills, as well as other durable powers of attorney for estate planning. Rising inflation erodes value in your cash legacies and return on investments in both your inter-vivos and testamentary trusts. To counter the effects of rising inflation, you must ensure that your investment strategy yields a return that is higher than inflation and ensures that all the cash legacies are regularly adjusted for inflation.
• Retirement planning- this assists you in evaluating your options and important elements of your future retirement including cash flow available for the provision of the required income needs. Pension and retirement policies are also affected by rising inflation. For pre-retirement, ensure that your investment returns are higher than inflation whilst for post-retirement you must cater for longevity.
• Investment planning- entails analysing your current investment holdings and identifying opportunities to cater for a well-diversified portfolio that aligns with your risk tolerance at any given time for investment portfolio improvements and updates. In addition to your Retirement investment portfolio, you should have a personal investment portfolio to support your retirement portfolio. This personal investment portfolio must be well balanced and actively managed depending on your stage in life and risk profile. Always ensure that a return above inflation is achieved. A well-diversified portfolio which includes local and offshore investments is recommended. Offshore investments offers currency hedging and protects you against sovereign risk.
• Tax planning- which takes into account tax planning decisions with strategies designed to minimise your tax liabilities and maximise your cash flow. It is recommended that when changing employment, you should not encash your pension contributions, but rather preserve or transfer to a new pension fund to avoid being punitively taxed. It is recommended to defer pension cash payments until you retire as the law exempts all senior citizens from taxation. You are also encouraged to make additional voluntary contributions if the total pension contributions to the pension fund is below the tax-deductible limit. Contributions to a personal pension plans is also recommended as these are tax deductible.
• To wrap up, you must ensure that you meet with your financial planner on a regular basis to review and make the necessary adjustments to make your financial goals achievable. In the short-medium term, the stability of the Zimbabwean economy is very much linked to the outcome and acceptability of the forthcoming harmonised elections to be held on the 30th July 2018. If the elections are credible and acceptable to the International Committee, more FDI will be expected to flow in resulting in a more stable and growing economy. Such an economy makes financial planning easier.