2024 has been an exceptional year on a broad base. Investors experienced fantastic returns across regions as well as across most asset classes. Equities, bonds, and property provided healthy double-digit returns that boosted investment portfolios, regardless of how they were structured.

The only caveat is offshore investments that are reported in rands. With the rand strengthening, offshore returns were watered down due to the currency move. Measured in hard currency, offshore returns are a different story, with the S&P 500 reaching record highs (again).

Today, the MSCI World Index is dominated by US stocks, with the S&P 500 now making up almost 75% of the index. This somewhat skews the impression of how other markets are doing. If the US does well, the index implies that the whole world is doing well. Be careful not to fall into the trap of misconceptions.

Take a look at the graph below, which Anchor compiled. If we consider the MSCI World Index (not shown in the graph), the return of almost 29% of the MSCI World Index over the last year trails only the US indices. All other indices trail the MSCI World Index by a mile, thanks to the phenomenal returns of the US market.

Remember that returns are indicated as growth in the value of the indices and their respective currencies. Returns are not reported in a common currency, so returns will differ depending on what currency you think in.

I want to make a few comments based on the above information:

• We always say that one must remain invested regardless of the market’s bad news or concerns that may prevail. Those investors who remained in cash during 2024 missed out on one of those growth periods that profoundly impacted long-term wealth growth. These periods generally follow periods of bad news and market underperformance. Although this is not true over the shorter term for the US market, which has seen explosive growth over several years, it holds true for most other markets, including SA, China, Japan, and most European markets. If we go back in history and analyse all the recovery periods following disappointing periods like the tech bubble, GFC and Covid, the same trend follows even in the US.

• Be very careful not to assume this is the norm going forward. It is much safer to believe that the long-term average returns will prevail over time. The MSCI World Index’s long-term average return is approximately 9% per year – a far stretch from the current 29% return. That does not mean you should not invest in the market or move to cash. It merely means that you must adjust your planning to more realistic returns.

• We know emotions drive investments. Currently, emotions are at a high across the globe. From the hype of supersonic markets to current wars prevailing, future wars threatening, concerns about possible political collapse in various jurisdictions (including ours), political upheaval (let’s see what the Trump administration dishes up), the drive for green energy and ESG compliance, the advance of AI in our lives, the list goes on. All this means that we can expect investment markets to change. We can expect new industries to invest in, we can expect things to happen much faster and we can expect markets to become much more volatile. The new-age investors who expect immediate gratification and make investment decisions based on their expectations of the future world where tech will dominate and crypto will be the currency of the future drives volatility upwards. Common sense indicates that one should invest in assets that are well-priced. Markets are driven by investors who keep on pushing the price limits upwards, irrespective of the value of the assets. We have to adapt to this and accept this and the only way we can survive this is to tame our emotions, retain realistic expectations and stay the course by continuing to apply long-term investment principles.

• With all the above said, please don’t fall into the trap of setting your next year’s income from your living annuity based on this year’s returns. I often have discussions with investors to keep their income at a realistic level, irrespective of what the returns on the portfolio have been. Portfolios that are offshore biased will have a higher level of volatility and we saw those portfolios underperforming local portfolios during 2024. I have written in the past highlighting the implications of rand volatility and income drawn against offshore-biased portfolios. Offshore exposure must be taken strategically, considering various factors like the amount you are drawing, the currency you spend in, your risk profile and capital preservation requirements. It makes sense to draw income from an SA-biased cash or income portfolio within your living annuity. I favour different “pots” within living annuities where one separates growth portfolios and income portfolios. Even though there may not be a meaningful difference in the overall structure of the portfolio, the fact that income is drawn from a stable portion of the portfolio does create a sense of peace of mind, taming emotions somewhat during turbulent times.

Stick to the 4% rule (5% if you must) and you should be fine. If you are currently drawing 4% or 5%, your income will increase anyway because your living annuity should have experienced a decent double-digit return during 2024.

Please don’t be tempted to increase it to double digits “just for next year”. The chances are that if you do increase it, you will not decrease it the following year. Remember, there is no guarantee that the returns of 2024 will repeat in 2025 and beyond. We may even be surprised by a very disappointing outcome in 2025. That is not my prediction, but there are those who say …

Have a blessed festive season, travel safely and remain invested.