Allan Gray’s golden rules for investing

Between market volatility, tariff threats, high taxes, and inflation, South African investors will face a challenging environment in 2025.

Allan Gray’s head of assurance, Richard Carter, explained on the Kaya Biz podcast that investors can take several steps to navigate this challenging environment.

In the first place, he noted the importance of generating real returns.

Since inflation “eats away at the buying power of your money”, any return that is lower than inflation means that you’re going backwards, Carter said.

“If the return you get on your investment is less than inflation, you’re actually going backwards.”

“Every year, your money might grow, the number might get bigger, but what you can do with that money gets less, because the spending power of that money has reduced.”

For example, even if your investment grows by 8%, but inflation is 10%, “you’ve gone backwards by 2%, and that’s a negative real return”.

What you want is positive real returns, which are returns that beat inflation. If you can get that for a number of years, those returns will compound.

“Compounding of real returns is the secret of investment success. That’s what makes investing work.”

Although some people may look to more stable investments during volatile economic times, Carter explained that this concept of positive real returns actually makes them less attractive.

This is because investments that give a very steady return often do not give you much of a real return.

“Sometimes, when you want to invest in something that has the potential to give you a real return, it’s also more volatile.” This includes equities, for example.

On average, equities tend to do quite well over the long term. However, over the short term, it can be pretty volatile, and you may not see a real return for one or even several years.

“What you’re looking for is for that to average out over time.”

Invest and forget

Carter’s next principle for investing focused on the “invest and forget” concept. Timing the market is very difficult, even for professionals.

For example, even if an investor were clever enough to disinvest before the Covid-19 pandemic, they would also have had to know exactly when to reinvest in the market, or they would have missed the market climbing above pre-pandemic levels.

“Unless you could get both decisions right, which was when to reduce and to disinvest and when to get back in, you would have been better off by simply staying in the market through the whole time,” he said.

Managing emotions, specifically greed and anxiety, is a very difficult part of investing.

To mitigate against making rash, emotionally fuelled decisions, Carter suggested formulating and sticking to an investment plan.

It is also a great idea to have an advisor or someone you trust to help you stick to your plan.

“If you don’t have a plan, then you can just chop and change on a whim, and feelings will more drive you, whereas if you’re investing according to a plan with aims in mind, then you can stick to that plan, even when things look a bit bleak.”

Carter added that it is really helpful to have a professional help you manage your individual investments.

“For the individual person trying to manage all of their investments, it’s tough.”

“There are professional investors with sensible, solid approaches to things and good track records over long periods of time that can that can help you with this, and I think that’s the sensible thing for most people to do.”

Diversification

Carter also recommended diversifying your investments.

“There is no one investment that is the perfect investment that is going to deliver these fantastic returns that are going to help you beat inflation for many, many years. That’s not how it works,” he said.

“You need to invest in multiple things. Sometimes, some things do well, and other things do badly; they offset each other. That’s all part of diversification.”

“You would never put all your money in one company, one share, so you invest in multiple shares.”

Shares are just one type of investment. Bonds, ETFs, real estate, commodities, and annuities are all examples of other types that people could consider adding to their portfolios.

Carter said that in addition to the type of investment, it is important to diversify where you invest your money.

It is important not to put all of your money in one country and have all of your assets exposed to South Africa or the United States, for example.

“We’ve been through a period where things look quite good, but we shouldn’t forget that not that long ago, things looked quite ominous,” he said.

“Having everything in South Africa or everything out of South Africa, neither strategy makes a lot of sense for someone who’s living here.

“You want to have diversification so you’re invested both in companies and investments based in South Africa and some that are based outside of South Africa for different exposures and different performance.”

“These things blend together to give you a better average outcome.”