Set your financial course for 2015

The start of a new year is a good time to reassess your finances, particularly if you receive a salary increase from January 1 or if you make financial resolutions for the coming year. It is also a good time to review your investments and consider your options for the year ahead if you are saving for retirement or depend on invested capital for an income.

When assessing your budget and your investments, you will have to make some assumptions about the inflation rate and the growth you will earn on your assets. Although no one can accurately predict either of these, you will have to make some educated guesses for planning purposes, and a look at how the markets performed last year is a good place to start.

Peter Brooke, the head of Macro Solutions at Old Mutual Investment Group, says the major indices reveal that in 2014 you would have earned the best returns from local and global listed property. Local listed property, as measured by the FTSE/JSE SA Listed Property Index, delivered 26.6 percent for the year to the end of December, he says.

If you had invested in local equities that track the FTSE/JSE Shareholder Weighted Index, you would have earned a return of 15.4 percent in 2014, while global equities, as measured by the MSCI All Country World Index, delivered 15 percent in rands.

Brooke says these were good returns, considering where valuations (share prices relative to earnings) were at the beginning of last year.

The year-on-year inflation rate, as measured by the Consumer Price Index, was 5.8 percent in November 2014.

South African bonds, as measured by the SA All Bond Index, delivered 9.7 percent and cash returned six percent.

Although listed property started 2014 on a forward yield (the expected rate of return based on expected rental income) of 7.5 percent, its current forward yield is 6.5 percent, Brooke says. This is because the prices of listed property shares have increased, lowering the expected return as a percentage of the price. You should therefore not expect as high a return from listed property in the year ahead.

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