I started tracking my investments and noticed that during the May 2019 elections, my investment portfolio dropped by 22%. How does political instability affect investment? It’s all about emotions, investor sentiment, and fear. Let’s take a look.
You can follow my investment journey here:
How does political instability affect investment?
This month has been quite a terrible month for all the indexes I track, especially after last months calculation of an average 28% growth! I’m now looking at a -22% “growth” (shrinkage really).
It’s easy to spot the day that the investments all dropped. It started on 6 May 2019 (2 days before elections) and just kept dropping until after elections. This points to political instability in the markets. So how does political instability affect investment? Well, it is usually triggered by huge investors and funds who pull their money out of local investments due to fear of future poor performance. If 1 or 2 funds do this, no-one will care. But as soon as investors do this on mass, panic strikes and people start selling off shares. The share prices drop and the general performance on the stock exchange drops.
When politicians start talking about new policies which may affect certain industries, or the rule of law is blatantly ignored by those in power; that causes fear amongst large investors.
That’s quite a generalised summary, but it’s about right.
So, as expected, political events have an effect on markets. It’s normal.
You’ll see in the image further below though that it was not just my local South African shares that lost value this month, the Satrix World ETF has also dropped a bit. That’s life. Unpredictable ups and downs.
The calculations
As always, I have calculated the gross amount of money that I have invested over time and I’ve used Excel to calculate daily compounded interest at a 5% “bank rate” and then at my actual growth rate. So this -22% is actually over the duration of my investment which started in December 2018. Included in the investment are all dividends (after tax) which I immediately reinvest as I receive them. I don’t look at fees or taxes as that just complicates matters.
Up to now I have invested R6,050 and my investments are currently worth R5,888.91 which means that I have lost R161.09. This is not too bad in a rand value but in terms of a percentage it’s terrible! And imagine if my investments were 100 x larger, the rand value would be seriously depressing!
There have been no new dividends received since the last update and the total dividends up to now are R7.61.
Clearly nothing to write home about but hopefully with time these will grow to amounts worth getting excited about.
Finally, the actual calculations showing the amounts invested and the daily compounded interest since starting the investment. Note the blue/grey block is a standard 5% that I could earn with my current bank and the lighter grey is the current -22% that I am earning.
So to reiterate, the -22% is the average performance since starting the investment. In reality some months are good and some are bad whereas my calculations are just looking at an average growth over the duration of my investment.
My current ETF investment strategy
I recently changed my investment strategy to match these percentages. I realign each time I invest more money so right now the investments don’t exactly match my goal.
- 30% Local Equities – CoreShares Equally Weighted Top 40
- 10% Local Equities – Satrix Top 40
- 10% Local Property – Satrix Property ETF
- 40% Offshore Equities – Satrix Worldwide
- 10% Offshore Property – Sygnia Global Property ETF
My current strategy is to keep going as I’m doing until I have R10,000 invested at which point I will stop, think and decide if I need to make changes. I may open a TFSA on the Easy Equities platform, I may open a US Dollar based investment or I may simply continue as I am doing. Other than this investment (and others I have), I’m focusing hard on paying off my home loan. So I often reassess my overall financial situation.
I’m just continually reading and seeing what other have to say about various index funds, strategies and investments and I’ll take my time to make an informed decision.
Is it worth keeping the investment?
Considering the poor performance at the moment, is it worth to keep investing in ETF’s and in the specific ones I’ve chosen?
YES
Passive investing such as ETF’s are really great for the long term (20+ years). They’re low cost and will just do their thing over time. The indexes will grow over time and political events, world tragedies and general upheaval will simply cause bumps along the way of your investment growth. However, the best strategy is to simply keep investing and not to worry about the month-to-month changes.
It isn’t necessarily a smooth ride and there is absolutely no way to predict anything, but generally over a long period of time the value increases.
This is a long-term strategy and definitely not speculative or a “quick win”.
Political instability and investments
This is my first DIY investment and I’m happy to continue as I am. Sure it may be down right now but I’m going to be tracking it very closely until the end of the year and am looking forward to see where it’s headed. Political instability, elections, wars, natural disasters, etc will all have an effect on the markets and ones own investments. Not much you can do about it.
I’m in it for the long haul and so should you be!
Following your journey. I just started. I’m a week in . Thank you
Great to hear! Let me know how it goes…
Thanks. I am a first timer and your blog gives me an idea on how things work.
That’s great! Love hearing that.
Thanks. I like your blog. Interesting journey showing real ups and downs and monitoring one’s reaction. Your risk tolerance (ability to accept losses) is often not what you think it is. I’m starting my own investment now, after trying the demo for 3 weeks(all in the red) so phasing in is probably a better approach than a lump sum. Good luck!
Sonia