Question:
I have R150 000 invested in the money market. Will this give good returns?

I started my investment four years ago and because of the economy I had to switch funds. I lost about R70 000.

My investment matures next year; will I make my money back?

Answer:
With all the thrills and spills of our market’s roller coaster year, there is no doubt many investors have found themselves in similar (or worse) positions. In replying to your question, we will explore the likelihood of your financial recovery as well as highlight some uncomfortable truths about this thing called investing.

Considering the fact that you lost R70 000 leads me to assume that you experienced a negative return of about 32 percent before switching and points toward a fund or portfolio predominantly invested in equities.

To summarise the market’s joyride over the recent past, it reached an all time high in May 2008 with the JSE index peaking at around 33 000. What followed was an epic fall in share prices until it 'bottomed out' and bounced around the 17 000 level. Just when the doomsayers began to whisper of the dark clouds of Armageddon and were viewing the light at the end of the tunnel as nothing more than an oncoming train, the markets made an ungraceful, but telling recovery. So much so that, quite literally as I write, the JSE has just bumped through the 26 000 level.

Now one may argue that we still haven’t fully 'recovered' until we reach previous levels. This would be quite correct. However, those that decided to heed the warning of the doomsayers and exited the market, probably did so at the worst possible time and not only 'locked in' those losses, but also sold their right to benefit from the ensuing recovery.

By all accounts, many have begun to ask the question: "Is now a good time to get back in?" At the absence of not already doing so and provided this asset class has a rightful place in your strategy, the answer should be an easy one.

Will you make your money back? Well, with experiencing the full brunt of market volatility in the negative sense, it may be hard to expect a smooth (and successful) ride out. To use an analogy, imagine spending an entire day digging a hole with a spade — the hole should be pretty big, right? Now, ask yourself whether you could fill that same hole the following day with just the use of a teaspoon — hard to imagine. Such is the nature of the financial markets — risk is rewarded with potential return. Given your current exposure to the money market, the R70 000 hole will not be filled in a year with your 'teaspoon' asset allocation.

Here are the facts: To get back to R220 000 you need your R150 000 to be invested with a required return of 48 percent. With current money market yields hovering around the seven percent level, it’s easy to see the problem. Add to this the uncomfortable impact of inflation and you may potentially find yourself a year down the line with most (if not all) of your gains eroded.

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