As Afropolitans, it’s time to consider your investment options carefully. We spoke to Mothepu Mothae, head of research for Absa Multi-Managers and Wouter Fourie, Chief Executive of Ascor Independent Wealth Managers (who was also named the 2015 Financial Planner of the Year for 2015), on the best investments to consider.

Top Investment Options

1. Cash

Mothepu: Cash offers an investor flexibility to redeploy capital in the market at bargain prices. However, there are trade-offs, the biggest being a no “growth” element of being out of the market. The other downfall is that in real terms your capital loses purchasing power.

Wouter: Cash offers you stability and is not subject to market volatility. It also earns interest and allows you to move your money at any time. On the downside, cash investments underperforms the market in the medium and long term. You also pay tax on the interest that you earn. As a rule of thumb, cash investments are a good way to store your money between longer term investments. 

With the World Bank slashing South Africa’s growth forecast recently from 1.4% to 0.8%, interest hikes and a downgrade looming, South Africa is staring down yet another tough year economically.

2. Money Market

Mothepu: Money Market instruments, much like cash, are liquid and offer no volatility or probability of capital loss. The advantage is that the capital does have a growth component, as these are yield-seeking instruments. However, in a recessionary environment where inflation can remain high for some time, Money Market investments can also give investors negative real returns.

Wouter: Money market accounts show better investment returns than fixed deposits, but the money is immediately available. These accounts protect your initial investment, which means that even if the market turns, you will not lose the money that you paid into the account. It is a good investment vehicle for short term goals. These products are not volatile, but in return, your growth on these funds will be less than other, riskier investments.

3. Fixed Deposits

Mothepu: Fixed Deposits and Certificates of Deposits (CDs) are recessionary proof investments which give an investor the opportunity to save while also growing capital at a pre-defined growth rate. Unlike traditional savings accounts, however, you have to wait a specified period in line with the set maturity to withdraw from a fixed deposit or CD accounts or risk a penalty.

Wouter: The true benefit of this type of investment is not the interest you earn, which is less than you can earn on other riskier investments. The true benefit is the fact that you cannot touch these funds if you get an itch for a new plasma TV or Prada handbag.

4. Short-Term Bonds

Mothepu: Short-term bond funds have a limited interest rate risk and credit risk. A small portion is also invested in liquid instruments to dampen volatility. The disadvantage is that short-term bond funds are not as liquid as cash or Money Market.

Wouter: You have several types of bonds, each with a different level of risk. Government bonds offer a high level of safety, but your yields will be lower. Company bonds can be a better investment if you are looking for higher yields, but keep in mind that your risk of losing your investment increases. In general, this type of investment can give you a good return and ensures the relative safety of your original investment. Bonds aren’t as liquid as cash or investments in stocks, so you cannot always move your money in and out of these bonds freely.

5. Gold

Mothepu: Investments in gold are a good venture during a recession, as gold is largely seen as a safe investment for preserving capital and protection against a “tail risk”. Gold has an intrinsic value and will display safe haven qualities for an investor at the time of extreme bear markets. However, it does not provide any income.

Wouter: Gold is usually a haven in turbulent markets such as this, but this asset class is not without risk. Gold prices can be very volatile and subject to the whims of the global market. If you invest in physical gold, your investment is not very liquid, which means that you cannot turn it into cash right away. The only possible growth you get in gold is from the price of gold, or the underlying instrument linked to the gold price, that goes up. You do not earn interest or dividends from this asset class and I usually avoid it.

6. Hedge Funds

Mothepu: Hedge funds are ideally designed for investors who intend to make money, regardless of market conditions. Their performance is less dependent on bond and equity market performance. However, hedge funds are largely unregulated; they employ very complex structures and have high minimum investment requirements.

Wouter: This is an instrument and not a specific asset class, which means that you could invest in hedge funds that hold any other form of asset class, including gold, cash or bonds. With hedge funds you make a future call on the market and stand to gain very good returns if your call is correct. If you made the wrong call, you stand to lose significant amounts of money. You should only consider investing in this risky product if you understand it.

6. Stock Market

Mothepu: During a recession, remaining invested in the stock market is not a far-fetched idea, especially when prudently implemented through a dividend strategy. An investor can experience less volatility by selecting stocks with steady growth and a long-term track record of paying out regular income in the form of dividends on top of capital appreciation. These are typically high quality blue chip stocks with strong balance sheets and little or no gearing in defensive industries where they command significant market share. It is not to say that these stocks are not risky and without potential for short-term fluctuations or capital loss, however dividend stocks can cause a stock to fall far less than non-dividend paying stocks due to the yield component that supports share price movement.

Wouter: Pick specific stocks to invest in which can be purchased through an online share trading platform or stockbroker, who can provide you with good stock-picking advice. Do not invest money that you cannot risk, because you are bound to lose on some of your stock picks. With this in mind, consider direct stock investment after your retirement and rainy day funds are established and funded. If you are unfamiliar with stock trading, have a look at exchange traded fund. It trades like a stock, but it represents a basket of stocks, spreading your risk across many different stocks.

7. Structured Products

Mothepu: Structured products can be ideal during a recession as they provide benefits such as hedging downside risk. They deliver attractive returns and offer peace of mind. The investor typically knows what they will receive at the end of the investment period while investor capital is protected in full, or a set barrier is reached. However, structured products tend to impose lock-in periods which means limited or no access to your capital.


Wouter: Structured products are great if you are planning for a short term project, such as a wedding, or a specific event or item. You are not looking to make much money on this type of investment, but you want it to be kept separate from your other savings or investments and you definitely do not want to lose this money. Any savings instrument that offers complete certainty has a low return. This is usually not the type of product you invest in for your retirement nest egg.

8. Hedge Funds

Mothepu: Hedge funds are ideally designed for investors who intend to make money, regardless of market conditions. Their performance is less dependent on bond and equity market performance. However, hedge funds are largely unregulated; they employ very complex structures and have high minimum investment requirements. 

Wouter: This is an instrument and not a specific asset class, which means that you could invest in hedge funds that hold any other form of asset class, including gold, cash or bonds. With hedge funds you make a future call on the market and stand to gain very good returns if your call is correct. On the other hand if you made the wrong call, you stand to lose significant amounts of money. You should only consider investing in this product if you understand it.

 Our advice? Don’t hesitate, plunge into these investment options and make your money work for you.

 Before you invest

Pay off your debts

Mothepu: Debt is huge erosion to disposable income, and in order to weather recession, consumers need to reduce or pay off debt which will release capital for investment.

Invest for retirement

Wouter: Many people are lured to more glamorous investments and skimp on their pension funds. Ensure that you pay at least your minimum contribution to your retirement fund. New legislation that came into effect on March 1 this year allows you to contribute as much as 27.5% of your taxable income to a pension, provident and retirement annuity and deduct the contribution from your taxable income.