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Magnus Heystek has spent a life time sharing his private finance knowledge with whoever cares to hear. He has co-authored many books on how you can enhance your odds of making a living in investing, from Making Money Made Simple to a collection on unit trusts and retirement. Usually, he has come under criticism and even assault for his views, together with from senior executives at corporations comparable to Outdated Mutual who didn’t like him unpacking the extreme and hidden prices in merchandise marketed to people on the lookout for an revenue in retirement. A journalist who began his personal funding recommendation firm, Brenthurst Wealth Administration, Heystek highlights how very unsuitable it has been to maintain all of your cash in South African belongings, particularly Johannesburg shares. In a nutshell, your wealth has been worn out – and that’s earlier than the Covid-19 virus swept in. – Jackie Cameron

Center class wipe-out briefly ten years

From Child Boomers to Ravaged Retirees

By Magnus Heystek* 

CAST your thoughts to the yr 2010. It was two years after the Nice Monetary Disaster: the JSE, rand and the residential property market had recovered in a short time from the ashes of the downturn and — extra importantly — SA was internet hosting the Soccer World Cup later in that yr. The temper was excessive and a sense of virtually unrivalled euphoria was sweeping the nation accompanied by the sound of the ever present vuvuzela ringing loudly in your ears.

You had been a part of the Child Boomers — that generational grouping of individuals, lucky sufficient, it appeared initially, to be born within the years 1946 to 1954.  This was a gaggle of individuals — swelled by the pent-up power and victorious libidos of thousands and thousands of man-soldiers returning residence after years on the entrance line, doing — properly what man-soldiers do once they return from the wars.

You had been one in all this age group — something between 56 and 64 — placing collectively the ultimate phases of your long-awaited “care-free” retirement your monetary advisor/dealer has been promising for thus lengthy. In any case, wasn’t the JSE simply one of the best place on this planet to out your cash, because it was among the finest inventory markets on this planet over 100 years in keeping with Swiss financial institution Credit score Suisse.

Why trouble with international equities? Native is lekker…

As did the residential property dealer who satisfied you that “Purchase -to-Let” was the way in which to monetary nirvana. Purchase and lease to these suckers who’re too dumb to personal residential property.

Ditto the pedlars of property syndications/unique sport farms/uncommon wines, stamps, cash — you identify. If it could possibly be flogged to an unsuspecting public, typically with an excessive amount of cash and never an excessive amount of widespread sense, South Africa would have been the place  to do it.

At this time, ten years later, virtually all of these carefully-crafted monetary plans and techniques have been laid to waste.

In truth, SA has most likely skilled extra Growth-Busts in a variety of asset courses than every other nation on this planet.

Let’s take the rand for example. In 2010 the common rand/USD change price was R7,54. It truly strengthened to a mean of R6,77 a yr in a while the again of a rising international demand for commodities, which happily we nonetheless managed to dig out of the bottom fairly effectively and managed to get onto trains and vans which took them to our export harbours, notably Sishen and Richards Bay.

So in 2010 it value you R75,400 to buy $100 000 and even much less, R67 700 on common a yr later. These had been the times my pal. That $1million house in Mauritius would solely have value you R6,700 000. To place it into context, immediately it might value round R19 million for a similar house, assuming no dollar-growth within the worth. Briefly: shopping for offshore property has all however disappeared from the wish-list of many aspirant property traders. All these seminars advertising properties from England, Cyprus, Portugal, Malta and even Mauritius have all been placed on maintain.

The decline within the rand since 2010 works its manner by way of the system, slowly at first however eternally relentless. You pay way more for something imported immediately be it cellphones, automobiles, cameras, computer systems, printers, overseas meals and wine and, in fact, overseas journey. A primary meal at an Italian eatery in London with a bottle or two of Chianti will set you again say £240. At immediately’s change price that quantities to about R5 500. Ouch and ouch once more!

And even when you assume you possibly can keep away from all these gadgets and received’t be affected by the weak rand, it hurts you by way of the sharp improve in medical assist tariffs, which have been rising at between 10-13% every year largely primarily based on the price of imported tools and medicines.

So, in case your desires had been to journey the world throughout retirement, the one travelling you can be doing is to Margate over Xmas.



For years, even generations, the JSE was the fulcrum of your long-term wealth planning in SA, both straight but additionally not directly by way of unit trusts, endowments, life assurance insurance policies and change traded funds.

As alluded to above, Credit score Suisse analysis indicated that the JSE, alongside Australia and the US, was one of the best place to place your cash over durations as much as 100 years as much as 2011. So, primarily based on these historic returns, what might go unsuitable? Your pension fund was roaring forward, as had been your share choices and discretionary portfolios.

All of your retirement calculations had been exhibiting a wholesome income-replacement issue, which allowed you to contemplate being a swallow, spending six months in Gauteng and 6 months on the coast or within the Bushveld to get away from the winter’s chilly.

The longer-term returns as much as 2010 or whereabouts had been wonderful, if not spectacular. It was not unusual for one of the best fairness funds to boast inflation+ 6% returns, typically far in extra of that.

Nonetheless, to the horror of JSE traders, the final 10 years has seen a collapse in the true and relative returns. Actual towards inflation and relative towards overseas markets.

The efficiency of the JSE All share index over the previous 10 years has proven the next decline in annual returns.

10 years (7,64% pa.), 9 years(6,81% p.a.), 8 years (6,58% p.a.) ,7 years (4,57percentp.a.), 6 years (1,09% p.a.),5 years(-1,94percentp.a.), 4 years (-3,06% p.a.), 3 years (-4,56% p.a.),2 years (-10,8% p.a.) and I yr (-20%).

(Supply: Cash Mate report 30/03/2020).

The pattern right here is quiet clear- ever -diminishing actual returns over ten years and over the previous 5 years unfavorable returns. This comes regardless of the stellar efficiency of world media and web firm Naspers, which at one time represented about 22% of the market capitalization of the JSE. Stripping out the performance of Naspers, the returns would have regarded even worse. Only a few mid- and small cap shares have made any cash for traders over the previous 5-7 years.

Even worse, repriced into US {dollars}, the JSE has given no actual return and for the reason that peak available in the market in December/January 2018 on the time of Ramaphoria, has the JSE misplaced you 58% in USD phrases.


Over the identical time frame, international fairness funds have delivered returns on common 12-15% in rand phrases. A lot for the argument that the JSE is a proxy for international markets. This was advertising hype which we now know is garbage. The JSE has disconnected from the remainder of the world when it comes to efficiency, even rising markets, the place for a lot of a long time it was a entrance runner of word. How issues have modified.


Most middle-class wealth in South Africa is to be present in (a) pension/retirement funds and in addition residential property.  Right here to we’re witness to, not one practice wreck, however a number of, all on the similar time. Let’s take a extra detailed take a look at the varied asset courses which outline middle-class wealth.


Pension funds put money into extra than simply listed equities. They will make investments (inside the pointers of Regulation 28 of the Pensions Act) not solely 30% offshore and a further 5% in Africa, but additionally in money, bonds, listed property and different investments comparable to hedge funds. Regardless of this larger latitude the returns of SA’s pensions business have additionally not overwhelmed inflation over any interval as much as 10 years, particularly not when funding and advisory prices are considered.

Listed below are the  median returns of the SA Multi Asset (medium fairness) funds over the previous 10 years, as in keeping with the most recent Cash Mate survey (30/03/2020).

10 years (6,54% every year), 9 years (6,26% p.a.), 8 years (6,06% p.a.), 7 years (4,71% p.a.), six years (3,24% p.a.),5 years (1,64% p.a.),4 years (0,92% p.a.),3 years (1,19% p.a.), 2 years(-1,20% p.a.) and one yr (-7,78% p.a.).

The opposite two classes of pension funds, excessive fairness and low fairness, have related returns: on common now over 5-7 years properly underneath the inflation price.



Who will ever neglect the rip-roaring residential property market, roughly from round 2003 to 2008, after which all of it got here crashing right down to a shuddering halt. SA was awash with wanna-be landowners, property builders, banks, brokers, builders and bond originators all touting the following sizzling factor within the residential property market. Banks threw warning to the wind, extending loans to newby landlords who ought to by no means have been allowed close to these developments, by no means thoughts the mountains of credit score prolonged to them.

The SA panorama is immediately, virtually 12 years after this market got here crashing down, nonetheless dotted with half-built and unfinished gated communities and {golfing} estates, testimony to this era of insanity.

Purchase-To-Lease was the most recent buzzword and virtually everybody grew to become an on the spot landowner with pores and skin within the sport. I attended a number of of those Get Wealthy With Property seminars and it was astounding to see how gullible individuals allowed themselves to be swept up on this property feedings frenzy.

The height of the residential property market was truly Might 2008, in keeping with figures from FNB, after which progress first collapsed after which went right into a 12-year sideways motion. At this time the common residential property is price 23% much less in actual phrases than on the peak of 2008.

For these nonetheless hanging on to the rental properties, the true yields have been drifting downwards to zero for a very long time. Leases aren’t rising quicker than inflation than they used to whereas charges and taxes and maintenance are. Even within the Western Cape — which for some time marched to its personal drum — costs, turnover and rental ranges have all however collapsed.

Right here’s an instance: a colleague of mine is renting a elaborate sea-facing house in Bantry Bay, Cape City at a rental which gives the proprietor with a yield of no more than 3% primarily based on the preliminary buy worth. After the proprietor’s bills and prices, the true yield is nearer to 1%. In a single phrase: insanity, and a short-cut to penury if this property was financed.



The marketplace for property syndications — primarily pushed by two main gamers, Sharemax and Picvest — boomed for about 10 years till 2011 or there about when all of those schemes collapsed, the one after the yr.  No-one actually is aware of him a lot cash was misplaced in these schemes however simply Sharemax and Picvest misplaced traders an estimated R8 billion. Throughout the nation a lot smaller however equally harmful property syndications sprung up and closed down, with main losses to unsophisticated traders who joined the feeding-frenzy. Commentators who warned about these schemes, together with Deon Basson, Vic de Klerk and myself had been both threatened with authorized motion or described as being silly.

At this time 10 years later the method continues to be ongoing in making an attempt to recuperate some cash however as of immediately, has not one individual being criminally charged for these fraudulent schemes.



Who can neglect the uproar when the story broke about our personal president getting concerned within the commerce of disease-free African buffalo, allegedly paying R20m for one such beast. Right here too was a extremely manipulated market which sucked in numerous wannabe-breeders, particularly within the Afrikaans neighborhood. I personally attended one such unique sport public sale in August 2015 —roughly round its peak. I watched in absolute astonishment how 400 or so extra khaki-clad farmers forked out thousands and thousands of rands for disease-free buffaloes, along with loopy costs for sable, kudu, giraffes and rhino.

After the public sale — which by the way in which was opened by the native dominee who put in a request to the Greater Powers for an excellent public sale — I discovered myself in some verbal altercations in regards to the funding deserves of what I had simply witnessed.

At this time that market has gone deathly quiet and the losses for many who bought concerned on the peak should run into the a whole lot of thousands and thousands of rands.


So, has there been any asset class which has survived the collapse of mainstream wealth in South Africa?

Effectively, money — which the asset managers love describing as “trash”— has been a secure and dependable asset class, with returns over the previous 10 years averaging simply over  7%, as did SA bonds, which have been producing even higher returns, nearer to 9% every year.

The opposite asset class was SA’s personal distinctive gold coin, Krugerrands, as we name them. The mix of a slowly rising gold worth since 2011 plus the weakening of the change rand has produced superb returns to native traders, averaging round 15% every year. On the time of writing the worth of a Kruger rand was near R30 000 a coin whereas a one kilogram bar of gold was price a cool million, give or take a few cents.

One of many sights of proudly owning bodily gold is (a) it’s gold that has already been mined and (b) is unrelated to the political and financial occasions unfolding in South Africa. An additional attraction is that it’s authorized tender and doesn’t entice VAT when bought.



Offshore equities, particularly corporations listed on the Nasdaq and Wall Road-exchanges have been a major driver of wealth creation over the previous decade. The Nasdaq, pushed by shares comparable to Netflix, Amazon, Tesla, Fb and others, has been the excellent performer, with compounded all-in progress in extra of 1 000% in rand phrases over 10 years.

The Dow Jones industrial index (DJ) over the identical time returned 637% whereas the MSCI World Index was up 457% every year over the identical time.

Rising market equities lagged fairly badly with a return of 273% whereas the JSE Allshare index was  stone final with a return of 206% over the identical time frame. This was one the weakest durations of progress for the JSE ever on report, each in relative phrases and in actual phrases.

For each R1 you made on the JSE over this 10 yr interval, the Nasdaq returned you R5 and Wall Road R3. Even a inventory customary international index greater than doubled the returns on the JSE.

Please look fastidiously on the chart beneath, a chart native asset managers desperately doesn’t need you to see.

A really horrific chart with nowhere to cover fo the JSE

Sadly, most South Africans traders had the majority of their cash, both straight or by way of retirement funds, invested in one of many world’s poorest-performing inventory markets.

However so far as offshore equities are involved, the VERDICT IS:BOOM!!!


The collapse of non-public middle-to higher center class wealth over the previous 10 years is already noticeable in lots of areas, particularly amongst these Child Boomers, who are actually 10 years older and generally a lot poorer than they ever thought they might be. Automobile gross sales are down, as are memberships of medical aids and golf golf equipment and even overseas journey.

Retirement plans — way back proven to be nugatory — are swiftly being redrawn with many individuals extending their working life for one more couple of years, if in any respect attainable. However company SA nonetheless has, in lots of instances, an virtually archaic retirement fund guidelines, the place senior individuals must retire at 60. Most senior executives shall be heading again to work with freshly-polished and up to date CVs.

What number of greenback millionaires do we’ve left in SA? Final yr New World Wealth estimated the quantity at round 44 000. Already down from 48 000 a few years in the past.

My very own estimate is a severe culling amongst our dollar-millionaires to ranges properly beneath 40 000, until they took good recommendation to externalize quite a lot of their belongings timeously.

What does the following 10 years maintain?

Maybe that’s the topic of a subsequent article.

*Magnus Heystek is funding strategist at Brenthurst Wealth. He might be reached at [email protected].

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