Of all the sources of financial stress, rand volatility is surely topmost for South African investors. As a nation, we obsess about the rand and its trajectory. Here is a simple 3-step strategy that everyone should consider for their personal investments to protect themselves from rand volatility:
1) The first rule is to diversify.
When it comes to currency, this means you should take money offshore. Use your annual discretionary and investment allowances to buy dollars.
2) Secondly, take money abroad regularly and don’t be too fussy about the exchange rate that you get
South Africa has one of the world’s most volatile currencies. We often see panic buying of dollars when the rand blows out, with investors getting the worst possible exchange rate. However, there is nothing in South Africa’s economic fundamentals that suggests this long-term trend of the rand depreciating against the dollar should reverse.
So, while you should avoid panic buying during currency blowouts, don’t otherwise be too cute with the exchange rates you achieve – in five or ten years’ time it won’t matter much whether you traded one month or the next. The important point will be that you did.
3) Finally, the third rule is to follow the first and second rules and then to relax.
Stop trying to micromanage your investments. The rand is volatile, which means you may sometimes see negative rand returns from your offshore investments. If you followed the second rule, over time you would have achieved a fair exchange rate on your foreign investments and bouts of rand strength should be impermanent.
For more visit: Foord Asset Management
