ETF: Rand panic and your ETFs

Kristia van HeerdenETF Blog, Latest

The rand took a nose dive yesterday as news broke that finance minister Pravin Gordhan has been summoned to appear in court on charges of fraud. Bank shares also took a beating, which could be worrisome for holders of FINI ETFs. With the news of Deutsche Bank still fresh, it seems there’s nothing but chaos and mayhem in the markets.

Hopefully we don’t have to tell you that it’s a terrible idea to make important life decisions in times of panic. If you sold all your db x-trackers last week, you would have to sell all your FINIs this week. That would leave you with a whole bunch of rands and not many travel opportunities.

In the last episode of The Fat Wallet Show I spoke to Simon about the fact that my ETFs investments have done nothing over the past three years. As always, the lesson is to stay calm and stay invested. The market recovers over time.

In response, listener Jason Pieterse drafted a response that seems eerily precognitive of the madness that followed hours later.

“To chip in my two cents: instead of making peace with the fact that the market won’t always be the best performing asset class at any one time, perhaps the point that should have been emphasised is that periods of non-performance like this reinforce the principle of diversification. In particular diversification beyond equities across assets classes. I’m sure if you had some of your cash sitting in bonds you would be just a little happier now than you are with your Capitec interest.

For some people out there sacrificing some potential equity performance by having part of their portfolio sitting in bonds, property, pref shares, physical assets. I myself have been slowly moving to a higher “cash” position by pushing more free cash into my leveraged income-properties to reduce my interest burden since the interest hikes started.

Not that property is for everyone, but I think the message should not have been “this is normal, the market does that every now and then” and instead should have been “if you are concerned about short term non-performance in any one assets class you should protect yourself by diversifying your portfolio across multiple asset classes” and ‘cash’ is a valid asset class.”

Since meeting Roland Rousseau at the beginning of the year, Team Just One Lap has been all about risk management. I needed Jason’s email to remind me of this. Hopefully it does the same for you.

If you’re not sure where to begin, start with Nerina Visser’s recommendation for compiling a balanced ETF portfolio here.

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