2018 was a TOUGH year for investment markets across the world. A number of the potential hazards that faced THE markets HAVE NOW come to pass.

This resulted in negative investment returns in many regions, especially in the USA and South Africa. This has affected retirement funds in South Africa and across the world. The investments of the Woolworths Group Retirement Fund were therefore also affected.

South Africa’s financial markets share in the fortune or the misfortune, as the case may be, of the global markets.

Some challenges are having a negative impact on the economy in South Africa and continue to pose significant risks to investment returns going forward:

• structurally low economic growth
• seriously high unemployment
• high debt levels and low savings rates
• political risks and uncertainty – national elections are coming up and several state-owned enterprises are in crisis, especially Eskom.

In order to earn good investment returns over a long time horizon, we must accept that the investment market will at times give us low, or even negative returns, as we are experiencing now. This is an uncomfortable but natural function of the market.

When investment markets perform badly, it is important to recognise the opportunities that this provides for long-term investors, like most of the Fund’s members:

1. When investment returns are negative, it means that the prices of the investments have fallen.
2. The Fund’s asset managers use this opportunity to buy investments that are cheaper than normal.
3. When the cycle eventually turns, prices will increase again, resulting in good returns on those assets that were bought at cheap prices.

However, it is impossible to know when the cycle will turn. It could take weeks, months or even years, depending on underlying factors.

To reap the benefits of this natural cycle you must stay invested throughout the cycle. You need to experience the temporary pain of the fall in investment prices, in order to reap the rewards of the rise in the prices that will follow. Avoid acting out of fear when markets go down, or you may end up experiencing the fall in prices but never the eventual rise.

You will benefit from PERIODS OF STRONG INVESTMENT RETURNS IN THE FUTURE, PROVIDED that YOU keep your savings invested.

The graph above shows the returns of the Fund’s main portfolio over different time periods to 31 December 2018, compared to inflation. This is the return that the investments of most members in the Fund would have earned.

NOTE: The long-term return (10 years) has been good, even though the recent returns (especially the one-year return) have been poor. This is the benefit of taking the long-term approach to your retirement investments.