A proverbial winter season is anticipated for the global economy in 2024, before returning to trend growth from 2025 onwards.
“In January 2023, we were bracing ourselves for a bumpy economic year ahead and interest rates were expected to increase. We are now relatively confident that we are at the top of the interest rate cycle and that there will be an economic slowdown in 2024,” says Citadel Advisory Partner, Kerry King.
Citadel Advisory Partner, Shane Murphy, explains: “Interest rates will remain higher for longer with the possibility of global central banks only cutting interest rates towards the end of 2024. This will likely lead to an inflection point in the markets with the upside being fruitful.”
“The ability to cut through the noise and focus on the fundamentals will be more important than ever, given current and impending geo-political events including elections both locally and particularly in the United States (US).” In addition to high interest rates in 2024, Murphy also foresees increased market volatility, particularly in equity markets.
In light of these circumstances, Murphy and King share three important tactics to withstand the anticipated economic downturn in 2024:
Sit tight and pay off your debt
It remains important, Murphy says, to have the ability to pay down debt as much and as soon as possible, or at least to continue with debt repayments, whilst interest rates are higher.
“Even high-net-worth individuals need to be careful in an economic downturn. Try to have some accessible emergency savings, sit through the volatility in the next few months, continue to pay off your debt, and keep your investments diversified and measured,” says King.
Stick to the investment
“We are expecting interest rates to be higher for longer and inflation to remain elevated for most of 2024,” King cautions. “Contain your expenditure so that you don’t have to draw off portfolios, because markets tend to bounce back and return to the long-term averages.”
“The key is not to get flustered and remove emotion from investing,” says Murphy. “If the intention is to build wealth over the long-term, don’t be too focussed on market movements in the short-term – 2023 has tested this mantra and 2024 could provide even more ‘noise’.”
“A good example is the rand to US dollar exchange rate – although it is important to not overpay for foreign currency when taking ZAR offshore, think forward to where the trend of the currency may head towards in three, five and 10 years' time and focus on the larger trend movements as opposed to the small market movements. The same goes for asset prices, so be cognisant of what is happening in the ‘now’ but zoom out to understand where the asset class may be in the future from a price point. Behaviours drive results, so if an investor can remain patient, committed and consistent in their strategy it will stand them in good stead over the long-term.”
Diversify your investments
“The ever-changing global landscape and shifts in global power will contribute to volatility in 2024 but remember the shifts in the investment landscape can provide opportunities in many different geographies, including in South Africa. Therefore, more than ever, it will pay to be diversified, in asset classes and geography,” says Murphy.
King agrees, “Diversification in portfolios, both in terms of currency and asset class, are key in volatile times. With the potential of interest rates decreasing globally, we are for instance expecting capital growth in global bonds.”
Murphy advises that it is essential to have a mix of regular retirement investments and sufficient discretionary investments, which are non-retirement investments, and can provide “significantly more options in terms of planning for retirement and ultimately withdrawing from your portfolio when the time comes.”
As we look forward, it’s also good to look back and learn from lessons during previous economic slowdowns. In summary, sit tight while saving and paying off debt, avoid emotionally driven investment decisions, and ensure diversification across asset classes and geographies.
“Also consider working with a qualified financial advisor. Consumer research by the Financial Planning Standards Board shows that those individuals who work with trusted financial advisors say they are better off, especially if it yields a realistic plan for retirement,” says King.
“Just know that there is always a way forward, even in hard times. Hang in there – this too shall pass.”
PERSONAL FINANCE