The JSE and the Pensioner

- Malcolm Stewart

Should pensioners ever be invested in the JSE? This is probably a good starting point as it all depends on how rich/poor you are, and how old you are!
A recent study by Investec showed that the inflation rate had pushed the cost of the standard basket of goods from R100 in 1994 to R200 in 2003. This is a startling statistic, it is telling us that the purchasing power of our money has halved in the last 10 years. Or in a pensioner’s terms your pension is worth 50% less than if you had retired to the Garden Route 10 years ago! So to have kept up with inflation your pension should have doubled or your capital should have grown by 100%. It is unlikely that any of these events have happened, and that you have learnt to get by on less. It does however demonstrate the importance of growing part of your capital. How much of your capital is allocated to growth is based on the following guidelines.
The golden rule is to establish your budget, set aside the funds needed to generate the cash to meet your budget, and then consider the balance. The balance should be invested on a very conservative basis remembering that you are now retired and cannot replace these funds. Should you decide on the JSE then a better understanding of the market is necessary.
Massive structural changes have taken place on the JSE over the last decade. These changes have occurred mainly in the various indices. The FTSE/ JSE Top 40 Index, which to a certain extent mirrors the Allshare Index, is totally dominated by shares, which have little to do with the South African economy. Anglos, which makes up +/-14% of the index depends on the world demand for resources and on the performance of the Rand for its profits. Billiton makes up 6% of the index with 30% of its profits coming from its oil wells! Richmond is an international retailer that sells 30% of the world’s fancy watches. Old Mutual is listed in London with subsidiaries all over the world (all of which are performing badly). Thus a pensioner should be wary buying shares or unit trusts that use the FTSE/JSE Top 40 Index as a benchmark. You would effectively be investing offshore and be exposed to the gyrations of the Rand.
The mid-cap and small-cap indices tend to be far more local. It is in this sector that you will participate in our economic growth and be sheltered to a certain extent from Rand movements.
Some of our “local” unit trusts are far more stable and will provide a tax-free dividend yield of +/-6%. This is a rare opportunity and should be included in any retired portfolio.
So when you hear that the JSE is down again the odds are that the foreign elements of the JSE are down and not the local shares!
There is therefore a place for equities in the investments of a pensioner, the percentage of your assets that you commit to the market is more personal and needs expert asset allocation. Our “local” market is very cheap and neglected and should perform well as interest rates decline over the next 18 months. Phone your advisor now!