Low returns, but stay invested

Member Newsletter

Quarter 4 • 2022

Over the last few years, inflation has climbed to its highest level in decades. We have also been experiencing lower investment returns because of the economic and political uncertainties that have been fuelled by the war in Ukraine and the recovery from the Covid pandemic.

However, over the long term (10 years or more) the Fund has comfortably earned investment returns higher than inflation. You must remember that your retirement savings are invested for the long term.

In this newsletter we explain how the Trustees of the Fund carefully monitor and evaluate the Fund's asset managers and ensure that their performance meets the Fund’s investment strategy. The Trustees are assisted by specifically appointed investment consultants.

In This Newsletter:

Low returns, but stay invested

For the last few years, we have seen lower investment returns because of worldwide economic and political uncertainties.
Let's look at inflation and interest rates AND THEIR IMPACT ON INVESTMENT RETURNS.

If you die while working for Woolworths, the death benefits that are payable to your beneficiaries are investigated and distributed by the Trustees. This is governed by section 37c of the Pension Funds Act.

Fund benefits do not form part of your estate and are therefore not distributed according to your Will.

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What is inflation?

Inflation is a general increase in prices and a decrease in what you can buy with your money.  A different way to understand it is that it is the rate of the increase in prices over a period of time. This means that now you will spend more to fill your petrol tank or to buy a litre of milk than you did a year ago.
Example:
  • A litre of milk costs R10
  • If the inflation rate is 5%
  • Next year, it will cost R10.50

Inflation at its highest in decades

In many countries inflation has reached its highest level in decades. This is being fuelled by the war in Ukraine and the economic recovery after the Covid pandemic.

This year consumer inflation in South Africa has surged to a 13-year high of 7.8%. The rising price of food, transport and housing is driving this. This low return and high inflation environment may continue for some time and has important implications for your investment returns.

How does this affect your investment returns?

Lower-than-expected investment returns mean that there is no guarantee that your investment returns will beat inflation as they have done in the past. News headlines will continue to evoke fear and panic about the economy and your investments.
Remember – your investments are there for the long term. The 10-year returns of the Fund (the long term) is where your focus should be when looking at the investment performance of your retirement savings.
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The implications of low investment returns and high inflation

It is important to manage your expectations, your comfort levels and behaviour so that you remain on track to achieve a comfortable retirement. It is impossible for investments to perform optimally at all times. Different investment types behave differently over time.

The Fund has qualified asset managers who practise the following:

  • They set out to achieve inflation-beating returns by using a mix of growth and defensive investments.
  • They are guided by the objectives of the investment portfolio.
  • They spread your investments across different investment types to grow and protect your savings, converting them into wealth over the years.

Putting your investments into perspective

Investments cannot perform at their best all the time. In fact, there is truth in the saying ‘investment returns don’t come in a straight line’. This is because, like the waves in the ocean, financial markets go up and down (fluctuate) constantly.
You MUST allow the ups and downs to run their course. Give your investments time to go through the motions and deliver on your long-term retirement objectives.
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Turbulent times can influence investment decisions. However, if you take a step back and look at investment returns over more than five years, you’ll notice that market fluctuations are normal through a long-term investment cycle. Experience has taught us that returns are not constant – there are periods of ups and downs, with some more pronounced than others.

You are looking for growth in your portfolio in the long term, so it is important not to panic because of short-term events. Over the long term, markets tend to recover from their previous lows.

So, while the headlines continue to evoke fear and you worry about the long-term prospects of your savings, remember that there are periods of contraction (recession) and expansion (growth) in every economy. The secret is to be patient and speak to a financial adviser to ensure that your investments are still on track to meet your personal needs and retirement objectives.

Taking risk into account

Because the Fund understands how important it is to achieve investment objectives, our investment approach takes risk into account. Our asset managers continually monitor and review your portfolio and ensure that it is aligned to meet all objectives with no disappointing surprises. They use high levels of skill to successfully make difficult investment decisions.

Our asset managers continue to:

  • Understand what risks need to be managed in your portfolio and how best to manage them.
  • Reduce the impact of sharp ups and downs in investments by spreading assets across various types of investments, both locally and globally.
  • Limit investment losses by making use of alternative investments that are not correlated to traditional market investments.

Alternative investments, such as private markets and infrastructure investments, help to spread investment risk and capture different sources of investment returns, which are not available in traditional markets.

We encourage you to remain committed to the Fund's long-term investment strategy. Not doing so has been proven to erode the value of your savings over time.

The value of good advice

The value of getting financial advice from a qualified financial adviser should not be underestimated. Contact Alexander Forbes Individual Advice Centre (IAC):

Tel: 0860 100 444 or
Email: iac@aforbes.com

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In This Newsletter: