The true cost of load shedding

Load shedding has cost all of us over the past few weeks, but do you know exactly how much?

Neither did we, until we did a little digging.

Cost to the economy at large

According to Chris Yelland, load shedding costs SA approximately R1 billion per stage, per day. Those Stage Four blackouts… they cost about R4 billion for each 24 hour period. That’s more than the national police service receives every year from government.

Investec’s Annabel Bishop says it’s even more dire than that – she estimates that it could have cost the country R2.4 trillion by the end of 2019’s first quarter, which is half of SA’s GDP, according to The South African.

Cost to business

Load shedding this year has been nothing short of brutal for business owners, with many struggling or even failing to keep their doors open in the tidal wave of load shedding-related costs and losses.

Among the chief things plaguing businesses are cost of business interruption, operating hours and the profit with them being lost, perishable stock damaged or expired and damage to electrical outputs when power surges and dips occur. Another newer trend is the rise of ‘load shedding burglaries’, in which criminals watch the schedule and hit workplaces during hours when security measures like electric fences are likely to be offline.

This obviously creates a negative feedback loop for both economy and enterprise. The less South Africa produces across various sectors, the less money is made and the more the rand weakens. The more the rand weakens, the harder it is to turn a profit as a local business and enough local business closing affects the rand further.

The hardest hit are undoubtedly the SMEs. The last time load shedding rolled around, SMEs voted load shedding the number one risk to small businesses in the 2015 SME survey. We can see why – numerous businesses have had to close down or scale back on operations due to loadshedding. They are the least likely to have generators and adequate insurance cover and the most dependent on the customers and vital profits likely to leave when the lights go out.

Cost to you as an individual

Because it affects the rand, long term savings vehicles like your investment portfolio or retirement fund is also almost definitely affected by load shedding – and for those very near retirement that can be a bitter pill to swallow indeed.
Food and steel-related products may also become more expensive, as manufacturers and farmers are feeling the pinch just like every other industry and may be forced t ratchet their prices up accordingly.

Large companies facing crippling increases in the cost of doing business may also roll out mass retrenchment if load shedding is not put to rights.

Remember, despite any short-term problems in the market like load shedding and its effects, it is still not wise to make financial decisions which may affect your portfolio based on impulse and emotion and without the advice of a trained financial advisor.

Equity Schmequity – really?

There’s a conversation that does the rounds every 10 to 15 years in investment savvy circles; Cash vs Equity – which is better?

When markets are rallying, equities hold to their promise of higher returns than cash; when markets take a knock, cash suddenly appears to have been a hidden gem that could even outperform equities for a short period.

The reason why this conversation is cyclical is because the markets too are cyclical, whilst volatile they will turn around. From the middle of a down cycle there is always fear and panic that the markets won’t actually turnaround – but so far, they always have.

Like a rollercoaster ride, if you ride it enough times, you get to know the corners, dips and rises – but you’ll still feel surprise, panic and joy!

Some may be dismissing the prudence of equities, toting ‘equity schmequity!’ or ‘cash is king!’, but historically this rhetoric is myopic. If you look at the last fifty years of equities versus cash, for those who had the patience to stay invested, equities have outperformed cash 80% of the time.

This is precisely why a well-structured investment portfolio will typically have diversity in asset-classes (equities, bonds, listed property and cash) and exposure that is both local and global. It’s through this diversity and risk exposure that an investor is able to strategically leverage different market opportunities within their specific investment plan.

If you’re hearing conversations that are pushing cash over equities you can rest assured they will likely flip in the coming years. We will never be 100% certain, but we can follow the historic patterns that those who hold onto equities long enough will have a high chance of achieving their investment goals. Those investing in cash (money market instruments) do so with the understanding that they want early access to their funds and don’t have the luxury of time to ride out the markets.

Your starter guide to alternative investments

In the wake of very lacklustre JSE performance and plenty of uncertainty, many investors have started considering thinking… alternatively.

In a nutshell

Alternative investments are different to the standard stock market approach; investing in assets outside the usual asset classes or in companies outside of the JSE-listed crowd.

But can you invest alternatively? The first thing to note is that, like anything bespoke, alternative investing is far more expensive and less easily accessible than good ol’ equities. However, if you have significantly more cash than the average Joe and the financial know-how these alternatives can easily outperform the normal market.

Assuming you can, should you? Here, we break down some of the main and most popular alternative investment options:

Hedge funds

Hedge funds are by far the most common and easily accessible of the alternative investing options. Due to this, they enjoy better regulation and options than other alternative asset classes. They are smaller, boutique funds often operating with much higher fees than traditional equities investing. But hedge funds routinely beat equities in the returns stakes, although not as handily of late.

The phrase ‘hedging your bets’ explains what hedge funds do well – hedge funds have a unique ability to ‘hedge’ themselves so that the investors behind the hedge fund manager can do well whether a stock appreciates or depreciates.

Hedge funds are essentially an exclusive pool of investors aggressively investing in a variety of opportunities not often available to the mainstream market. This can suit investors who have money to spare (the minimum investment requirement for most funds is high – sometimes R1 million just to get in the door) and want a long-term investment vehicle that’s safer than the stock market that offers similar or higher returns.

Venture capital and private equity

Usually only available to private equity of venture capital funds themselves, this is long-term investment in promising businesses near the beginning of their lifespan, with a view to share in their success later down the road when the company is turning a profit.

Venture capital investing, specifically ‘seed round’ investing during which the company invested in is very young, is typically a long relationship with the funder in an advisory role to the business and an aid in growth.

Private equity, although often grouped with and sometimes mistaken for venture capital, is different. Private equity often buys out these companies wholly or in part and so is the primary decision-maker, rather than the advisor.

This is attractive because private equity traditionally outperforms equity. Options here are limited to those with a private equity fund registered with SAVCA.

Socio-economic investments

Even more rewarding than the idea of private equity can be socio-economic investing – which is putting in finance and sharing in the returns later, not in a company, but in the country. So-called ‘impact investing’, these investment alternatives address issues in society like infrastructure, education for lower classes, renewable energy innovation and the creation of low-cost houses, to name a few examples. Few funds offer such options as it’s still a relatively new concept for SA, but it’s a great vehicle for those who can access it and are looking to improve and contribute meaningfully to the world while making returns on their money at the same time.

It’s important to remember that alternative investing is generally more difficult, exclusive, expensive and time-consuming than the well-oiled default of listed stock market options or old-favourite vehicles like unit trusts. They’re also newer here in south Africa, with less variety and regulation for now because there is simply less demand. But if you’re something of a pioneer and you want something very long-term, it may be worth a try. Just be sure to talk to your financial advisor and consult your personal financial plan before making any sudden movements.

On the road: the best road trips for the long weekend season

It’s that time of year coming up again when the public holidays flow thick and fast for South Africa. With a country as beautiful as ours, the ideal solution could be a road trip.

Here are some of the best to get you out of the city and on the road.

Got three days? Enjoy the Garden Route
It’s an oldie but a goodie for a reason, especially if you stay on the coast. Even if you’ve done the Garden Route many times, there’s always a new wine farm to check out and side roads to take. Add horseback riding into the mix for some extra adventure.

Got four days? Hit the Midlands Meander
Durban is a holiday favourite but just a little too far away, for some, for a long weekend trip. The Natal Midlands, however, are a whole two hours closer to Johannesburg and boast some of the most extravagantly verdant greenery in the country. There are countless antique stores, cafes and curio shops to stop in and the prices are far lower than in Cape Town or Joburg.

Got nine days? Try Namibia
If you’ve never done a road trip to Namibia, you can’t possibly imagine how strikingly lovely the scenery is, how meditative the open, uncongested road and how friendly the people are once you get there. If you can fit in the extra drive, check out the Skeleton Coast – it’s on international tourists’ bucket lists for a reason.

Got ten days? Head to Botswana
In between the lush Okavango Delta and some of the best game reserves on the continent, Botswana is the ultimate road trip for a South African nature lover. Lush green bush, mighty rivers, striking sandy plains… Botswana has got it all. You’re unlikely to find cities as clean, unpretentious and well-run as Gaborone either.

There you have it, some of the best road trips to get your spirit of adventure without the exorbitant price of air tickets.

Teach your children well

It’s an overwhelming feeling most of us recall vividly – that first job, the first month of rent to pay and the exhilarating yet terrifying knowledge that we have to keep ourselves alive for the rest of the month for the very first time.

For those with children in school, a new experience awaits: watching your own child navigate those same hurdles. And yet, it doesn’t have to be a gauntlet for them like it was for us. In a few simple steps, you can set your child up to leave the nest more confident and wise than your own former self.

The younger they start, the better
You may feel that you want your children to grow up unencumbered by the stress of money. In fact, many parents who grew up in relatively poor circumstances want to lavish finances on their children to the point where they don’t even think about money…

Until they leave the house, that is.

It’s important to understand that the later a person starts to think about managing their own money, the scarier it is. Teaching your children the importance of rands and cents as early as possible is not only better for you, but significantly less stressful for them. As soon as your children are old enough to understand the value of money and the arithmetic behind counting coins, teach them how to draft a budget. Make it as fun as possible and empower them young with their pocket money.

… but don’t make it all about spending
Many savvy parents teach their children about money from a young age – but almost always with a mind to spending.

‘You can save up your R50 now instead of spending it on sweets today so that you can afford that game you want in two months’ time.’

While this does teach kids the vital importance of budgeting to an extent, it also tacitly enforces a zero-savings mindset. From as young as possible, teach kids that they should never spend all of their money and always have something in savings. For example, tell them that, if they save R5 in their piggy bank each month, you will give them R50 at the end of six months. If they leave that R50 where it is, they can get R100 at the end of the year. This alone will set your children up to succeed where many South Africans fail – having the benefit of compound interest from early on. Also offer your advice to help them pick out their first savings account and retirement or living annuity when they leave home.

Rainy day smarts
Also, emphasise the wisdom of having emergency savings separate to general savings. The benefits of a short-term safety net are numerous and ensure that, should something happen to you or to the economy, your child will able to weather the storm. This tip is often the hardest for parents to take because an important part of this with older children is letting them bump their heads a few times.

If they haven’t got emergency savings or insurance and they’re in a bumper bashing, for example, don’t just rush in to save the day. Ask them about what steps they had taken to safeguard against misfortune and let them see that it’s up to them and no one else to ensure that they thrive financially without getting crippled by twists of fate.

And remember: the better you teach your children financially now, the better they’ll be able to look after themselves – and you – later.