Certainly Warren Buffet, an investor par excellence, has been beating the drum of Passive Funds with elevated vociferousness recently. In South Africa, most commentators hedge their bets with a paucity of actual statistics to back their case. A recent article by Patrick Cairns does just that as he nails his mast to the Passive Funds wall.
Main picture: It is your money and your future that is being invested in. Fund Managers will always steer investors towards Active Funds for self-serving reasons: their commission
Note: I have used the term Passive Funds to denote Index Funds throughout
I was reminded of this maxim last night whilst listening to Xolani Gwala’s show on 702 Talk Radio. The topic under discussion was the collapse of the MMM Global Investment in most countries in which it operated. Despite this, the South African operation remained open. It was at this juncture that I recalled the adage regarding fools and their money. Incredulously a female listener disputed the fact that the SA operation would collapse like their foreign counterparts. Xolani was unsuccessful in attempting to convince the caller that if all the operations used the same modus operandi – that is acted as a Ponzi Scheme – then the local operation was bound to collapse as well.
Main picture: Uncle Charlies. The rest of the pictures are in the same vein ie South Africa of the 1970s and 1980s.
According to the shrill emails received and the rants by Max Keiser on RT’s economic program on DSTV, the solution to currency crises is the adoption of a virtual or a cryptocurrency – call it what you will – such as Bitcoin. Seemingly immune from government and bankers manipulation, they are a secure method to bypass government control. Will this “currency” ultimately supplant traditional currencies or will it be a chimera? Won’t the criminal element combined with human greed, folly and venality ultimately prove its downfall?
For most of us in full time employment, the major source of pension income will be derived from one’s Employer’s Pension Fund. Together with some additional investments in one’s personal capacity this would previously have been sufficient to derive an adequate pension. This assumption is no longer valid for a number of reasons.
The genesis of this disconnect was the introduction of Defined Contribution Pension Funds some 20 years ago. Previously most employees contributed to what was known as a Defined Benefit Pension Fund. In terms of this arrangement, the retiree would be paid a pension calculated on the basis of 2% per every year employed times by the average salary over one’s last x years of employment. For most employees, this would equate to approximately 70% of their final salary. Combined with their private savings, this would ensure a pension of at least 80 to 90%, a fairly comfortable retirement without having to agonise over one’s financial situation.
Three economic criteria have dominated the world economy since the crash in 2008: the Central Banks have been mandated to maintain low inflation – not more than 1.5% – , Quantitative Easing and extremely low interest rates. All had one objective in mind: to ease the economy gently and gradually out of depression and to stimulate growth. The result has been continued deflation in consumer prices, moribund inflation while asset prices have surged. This scenario is unsustainable and will have consequences in the near future.
After galloping inflation in the nineteen seventies – the culmination of decades of Keynesian policies – inflation rates ratcheted up. The stimulant effect of the drug benignly known as inflation now presented deleterious effects. Drastic action was called for. Easy money flowed into unsustainable or delinquent assets such as leviathan but unproductive such as British Steel, British Airways and British Coal. No longer was the propping up of bloated uncompetitive entities viable.
Retirees find that “nest eggs” in the form of Retirement Annuities were a worthless investment.
Those Retirement Annuities that I subscribed to 40 years ago as an Articled Clerk were supposed to be the “nest egg” that would supplement my work pension. I was gaily promised huge returns. These policies would make the difference between a comfortable and totally carefree retirement.
After 20 years of Debit Orders being processed, I fully expected a sizable investment to have built up. Instead what I found was abysmal returns & an inadequate capital sum. The one policy was growing at 5% at the time in an era where interest rates & inflation were three times that figures.
Rating: 5 out of 5
By all accounts, Barry Tannenbaum was the most unlikely person to either be a crook or even to be able to harm a fly yet ultimately the extent of his fraud & lies was to affect not only the super-rich for which losses of R30m were like pocket money & were written off to experience without a second thought.
But it was not only the mega-rich who were financially affected but life-long friendships were annihilated as a consequence but ultimately the small players were sucked in through greed & their better judgment into this scheme.