LONG TERM LESSONS July 2015 John Orford

INFLATION IS PUBLIC ENEMY #1 “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man” Ronald Reagan

INFLATION IS PUBLIC ENEMY #1 Source: Old Mutual Investment Group, MacroSolutions

0.7% REAL RETURNS OVER THE LAST 95 YEARS Cash is trash

IT’S EQUITY FOR REAL WEALTH CREATION Annualised real return December 1929 – December 2014 Source: Old Mutual Investment Group, MacroSolutions

THE SANDTON SKYLINE FOR SA EQUITY Source: Old Mutual Investment Group, MacroSolutions December 1924 – December 2014

IT’S TIME IN THE MARKET NOT TIMING THE MARKET

THE VIRTUE OF PATIENCE Source: Old Mutual Investment Group, MacroSolutions 1 day and 1 week: Rolling total returns, June 1995 to current 1 month to 10 years: Rolling total returns, January 1925 to current Holding period

IT’S MAINLY ABOUT COMPOUNDING R100 in the JSE 90 years ago = R21 million

DO YOU HAVE ENOUGH BASKETS?

DIVERSIFICATION HELPS 50 Years30 Years20 Years10 Years5 Years SA Equities 17.7% SA Equities 18.0% SA Property 17.1% SA Property 21.5% SA Property 21.4% MacroSolutions Balanced Index 15.9% MacroSolutions Balanced Index 17.0% SA Equities 15.1% Gold 18.3% Global Equities 21.1% Global Equities 15.5% Global Equities 17.0% MacroSolutions Balanced Index 14.7% SA Equities 18.0% SA Equities 15.8% Gold 13.5% SA Property 14.5% Global Equities 14.1% MacroSolutions Balanced Index 15.7% MacroSolutions Balanced Index 15.2% Global Bonds 13.1% SA Bonds 14.4% SA Bonds 13.3% Global Equities 14.5% Global Bonds 11.6% SA Cash 10.9% Global Bonds 14.1% Gold 12.6% Global Bonds 11.0% Gold 10.6% SA Bonds 10.5% SA Cash 12.0% Global Bonds 11.9% SA Bonds 8.5% SA Bonds 10.0% SA CPI 8.8% Gold 11.3% SA Cash 10.3% SA Cash 7.4% SA Cash 5.9% SA CPI 8.6% SA CPI 6.1% SA CPI 6.0% SA CPI 5.2% 8.9%9.4% Highest Return Lowest Return Range between highest and lowest return Source: Morningstar

ACTIVE ASSET ALLOCATION CAN ADD VALUE SA Property 29.6% Gold 34.8% SA Property 35.9% Global Equities 59.6% SA Property 26.6% SA Equities 19.0% Global Bonds 30.7% SA Equities 26.7% MacroSolutions Balanced Index 22.8% Global Equities 15.8% SA Bonds 15.0% Global Equities 15.8% Global Equities 21.3% SA Equities 21.4% MacroSolutions Balanced Index 11.3% Gold 14.6% SA Property 8.9% MacroSolutions Balanced Index 20.4% Global Bonds 19.6% SA Equities 10.9% MacroSolutions Balanced Index 13.2% MacroSolutions Balanced Index 8.9% SA Bonds 16.0% SA Property 8.4% Global Bonds 10.2% SA Cash 6.9% SA Bonds 8.8% Gold 10.8% SA CPI 5.4% SA Bonds 10.1% SA CPI 3.5% SA CPI 6.1% SA CPI 5.7% SA Cash 5.2% Gold 8.9% Global Equities 0.5% SA Cash 5.7% SA Cash 5.5% SA Bonds 0.6% SA Cash 5.9% Global Bonds -4.8% SA Equities 2.6% Global Bonds 5.4% Gold -11.2% SA CPI 5.3% 34.4%32.2% Highest Return Lowest Return Range between highest and lowest return Source: Morningstar

RISK/RETURN PLOT: ANNUALISED RETURNS VS VOLATILITY OVER 20 YEARS Source: Old Mutual Investment Group, MacroSolutions Risk Return Balanced Index Profile Capital Profile Stable Growth Profile Balanced Profile Pinnacle Money Market SA Bonds Global Equity SA Equity

BUT WHAT IS THE OUTLOOK VS THE PAST? Source: Old Mutual Investment Group | NB: These are long-term, real returns expected over the next five years, as at 15 January 2015 * The international return expectations above are in US Dollar terms; any rand depreciation will add to returns in rands. SA Equity Property Bonds Cash Global* Equity Bonds Cash Expected 5 Year Real Return View 5.0% 4.5% 2.5% 0.5% 5.0% -1.0% Neutral – + – – + Historic Real Return (since 1929) 7.8% 4.7% 1.5% 0.7% 7.0% 3.3% -0.3% Neutral p.a. MacroSolutions Balanced Index 3.8% 5.9%

CONCLUSION Inflation is the enemy Longer term cash is trash not king You need equities to beat inflation “Time in the market” not “timing the market” Diversify to reduce risk Active Asset Allocation can add value

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