Newsletter • Quarter 2 • 2021
Portfolio Performance
To do this adequately, investment returns must comfortably exceed inflation over the long term. If your retirement savings do not earn a return that is at least equal to inflation, the real value of your savings will be eroded over time.
The above chart shows that the Fund has achieved this objective over all the time horizons shown.
The chart shows the returns per year for the Woolworths Group Retirement Fund’s main portfolio, the High Growth Portfolio, over different time periods, all ending on 31 March 2021. The portfolio returns are compared to inflation and the return of an index-linked (passive) balanced fund. All returns are net of fees.
Since February 2020, investment markets experienced unusually large shifts as a result of the impact of the COVID-19 pandemic. Major global events often cause investors to become nervous as uncertainty about the future increases.
Seeking more certainty about the possible outcome of their investments, investors sell investments that they feel expose them to too much risk and buy into more defensive investment strategies, with seemingly lower risks. This is referred to as 'de-risking'. This happened to an unprecedented extent during the first months of the pandemic in 2020. As a result, investment markets showed extraordinary losses in the first quarter of 2020.
However, investment markets quickly recovered, ending 2020 off with positive returns overall, and continued to rise in the first quarter of 2021. This is reflected in the chart above by the unusually high returns experienced over 12 months to the end of March 2021.
This is a good illustration of how extremely difficult it is to predict the path of investment returns in the short term. It is also a good demonstration of the dramatic effect that emotions, specifically fear, can have on investment returns in the short term.
Don’t put all your eggs in one basket or, to use the technical term, diversify. The Fund’s investment strategy is designed to do just this, with different types of investments in South Africa and globally.
Don’t make decisions based on your emotions. Acting out of fear or eagerness, or trying to manage regret instead of risk, can cause us to make irrational decisions. The Fund uses highly skilled advisers and investment managers, and follows a careful strategy with the oversight and governance of the Board, to ensure that the investment decision-making avoids the pitfalls of emotions.
Spend time in the market rather than trying to time the market – or, to put it more plainly, stay invested through the ups and downs. As demonstrated by the very quick recovery of investment markets in 2020, it is important to stay invested – even when markets experience a downturn or crash.