The importance of adopting a diversified portfolio in the current economic climate
The South African economy is in rough seas and things are expected to get worse should the country lose its final investment grade rating with another junk status.
Moody’s — the only one of the world’s top three rating agencies to rank the country’s sovereign debt at investment grade with a stable outlook — is expected to publish its latest report on 1 November shortly after Finance Minister Tito Mboweni delivers his medium-term budget policy statement (MTBPS).
Sean Sanders, co-founder of cryptocurrency index platform Revix and ex-investment banker, warns that the country’s precarious economic situation has far more devastating consequences for the man on the street. He argues that less wealthy individuals, whose investments are tied up in local property and retirement accounts, will see growth insufficient to support their future lifestyles, nevermind further improve their retirement income.
"Traditional Rand-denominated investments such as stocks, property and bonds are sensitive to economic shocks and political headwinds, which is why it’s important for the average middle-class South African, who is already diligently saving for retirement, to consider investing in a diverse portfolio of alternative investments. These are investments that aren’t tied to the same growth and risk drivers as local investments," said Sanders.
South African’s loss in real purchasing power is not a result of poor investment returns alone - the JSE actually has a decent long-term track record - but rather a steep and constant depreciation of 5.3 percent of the rand over a decade. South Africa is not alone.
Sanders explained, "Emerging market fiat currencies are failing and all the warning signs point to this trend continuing. In the 90's we saw the collapse of the Mexican Peso, Thai Baht and Russian Ruble, then more recently we’ve seen the collapse of the Zimbabwean Dollar, the Venezuelan Bolivia and the Argentine Peso. The Rand joins this list except that it has been more of a slow puncture than a blowout".
He continues, "Most people don’t know this, but the average life expectancy for a fiat currency is actually only 27 years. You see, paper money gets introduced into an economy whereby it creates an economic boom. Over time, however, it gets overprinted, slowly building inflation and losing value. Eventually, it devalues enough to lead not only to its own collapse but also that of the economy connected to it. Later on, a new form of money is introduced to replace the failed one. While fiat currencies may stay around for a while, history shows us that they inevitably fail at some point".
Whenever fiat currencies collapse, precious metals such as gold and silver have nearly always remained good hedges against inflation and economic recession. The concern for many is that you can’t spend gold or silver, and not everyone knows how to invest in these commodities. This means that these assets aren’t very practical. As an alternative, reputable cryptocurrencies, once regarded by sceptics as a fringe financial instrument associated with the dark regions of the internet, could be the next best option for preserving and growing long-term wealth.
"Cryptocurrencies exhibit uncorrelated returns to all other traditional asset classes and they offer long-term holders significant return potential. Today, they are recognised by global financial firms as an alternative asset class widely incorporated into investment portfolios. Even former IMF Managing Director Christine Lagarde has acknowledged the potential of cryptocurrencies and their underlying blockchain technology to improve lives," said Sanders.
He added, "A well-diversified investment portfolio of offshore stocks, property, commodities and cryptocurrencies is your best defence to local headwinds in the South African market. With the heightened domestic risks, assets that hold their value when the Rand depreciates should be incorporated into your investment portfolio with urgency more than ever before".
Conventional wisdom tells us that roughly 20 percent of one’s portfolio should go toward alternative investments. Diversified cryptocurrency bundles offered by Revix take the guesswork out of investing in this asset class. Sanders added, "Revix offers diversified low-cost cryptocurrency bundles for novice investors who want to stake their share of the cryptocurrency market".
Sanders goes on to explain that cryptocurrency bundles are a lucrative alternative to investing in traditional asset classes when considering cryptocurrencies have been regarded by Goldman Sachs as the best-performing asset class of 2019.