Retirement investing when markets feel uncertain - Moneyweb & 10X

The past few months have been a sharp reminder of how quickly markets can change. At the start of the year, many investors were focused on valuations, earnings expectations and whether the exceptional run in US equities could continue. Instead, markets have had to process a far more unpredictable set of developments, from heightened geopolitical tension to oil price shocks and fast-moving shifts in sentiment. The result is a timely question for retirement investors: how should you think about risk, return expectations and portfolio positioning in a world that feels increasingly uncertain?

In this webinar, MoneywebNOW’s Simon Brown and 10X Investments’ head of investments, Chris Eddy, unpack how markets respond to volatility, why diversification matters more than ever, and what investors should keep in mind after a particularly strong five-year period for returns. We’ve summarised the key talking points below.

• 00:00 Introduction: retirement investment expectations in a riskier world
• 02:52 Why dramatic headlines do not always translate into dramatic portfolio outcomes
• 06:03 The case for diversification across geographies, currencies and asset classes
• 07:42 Why markets move in cycles, not straight lines
• 09:05 Strong recent returns can distort future expectations
• 11:08 Drawdowns are a normal part of long-term investing
• 15:00 Matching your portfolio to your long-term objective
• 16:05 Why slightly more defensive positioning may make sense now
• 18:34 Equity valuations, bond yields and the case for rebalancing
• 21:22 Long-term return expectations for equities, bonds and cash
• 24:30 How portfolio concentration can quietly build over time
• 27:31 What elevated valuations are assuming about future earnings growth

Markets can stay steadier than the headlines suggest

One of the more striking observations from the discussion is that even in the face of major geopolitical events, market outcomes are not always as obvious as they seem. A war in the Middle East, sharply higher oil prices and persistent uncertainty might sound like a recipe for widespread market panic, but that is not necessarily how markets behave. In fact, one of the key points raised in the webinar is that, for many South African investors, broad asset classes had effectively round-tripped back to where they started the year after a volatile March. That does not diminish the seriousness of events on the ground. It simply reinforces a point investors often forget: markets do not move in neat, predictable ways, and trying to guess the exact outcome of every headline is a losing game.

That is what makes headline-driven investing so dangerous. It is not just that events are hard to forecast. It is that even if you could forecast the event correctly, the market response may still be very different from what you expect. Add in the fact that volatility itself creates whipsaw conditions, where markets can move sharply up or down in a day, and knee-jerk portfolio changes can quickly destroy value rather than protect it.

Diversification is less exciting than prediction, but far more reliable

If there is one thread running through the whole conversation, it is this: a sensible portfolio is built to withstand uncertainty, not to bet on a single outcome. Simon Brown points out that, just a year ago, few investors would have expected the JSE to outperform the S&P 500 so strongly. Yet that is exactly what happened. That kind of surprise is precisely why portfolios need exposure to different asset classes, regions and currencies. A diversified portfolio may never feel as thrilling as betting heavily on the market everyone loves most, but it gives you a much better chance of still owning the winners when leadership changes.

Chris Eddy makes the same point more simply: if you hold local and global assets, equities and bonds, growth and defensive exposures, there is usually always some part of the portfolio still doing its job. The danger comes when investors become too concentrated in one area, then start chasing whichever asset class has just delivered the strongest returns. By the time that urge kicks in, those returns are usually already in the price.

Markets move in cycles, and that matters for expectations

Another major theme in the discussion is that markets do not deliver returns in a straight line. They move in cycles, with stronger periods usually followed by weaker ones. That is not a flaw in the system. It is part of the price investors pay for long-term growth. The problem is that after several years of unusually strong returns, people start to treat those returns as normal. A period of inflation-plus-15 or inflation-plus-11 starts to feel like the baseline, when in reality it may be an unusually good run.

That can lead investors into an unhelpful frame of mind. Instead of asking what portfolio is appropriate for their long-term goal, they start asking how to get more of whatever has just gone up the most. In practice, that often means taking on more risk right when diversification feels least necessary and recent winners feel safest. It is exactly at moments like that that investors may need to reframe their return expectations and check whether their portfolio has quietly become more aggressive than they intended.

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Drawdowns are not a bug. They are part of the deal

One of the most useful parts of the webinar is the discussion around market falls. Investors often talk about corrections and crashes as though they are unusual interruptions to normal market behaviour. They are not. The transcript notes that, looking back over roughly the last hundred years of S&P 500 history, there have been around 59 drawdowns. In other words, drawdowns are not rare events to be feared from afar. They are part and parcel of long-term investing.

That insight matters because it changes the goal. The objective is not to build a portfolio that never falls. The objective is to understand what kind of falls are normal for the return you are seeking, and to be mentally prepared to live through them. Selling after a drawdown has already happened usually just locks in the damage. A more conservative portfolio of cash and bonds may help you sleep at night, but over long periods it is likely to deliver much lower real returns. As Eddy puts it, you may sleep better tonight, but not necessarily in 15 years’ time.

The real question is whether your portfolio matches your goal

Rather than asking whether markets feel scary, the more useful question is what your money needs to do. If you are in retirement and drawing an income, your portfolio still needs to generate a real return above inflation after fees if that income is to remain sustainable. In the webinar, Eddy gives a practical example: if a retiree needs a 5% drawdown, they need something like a real return of 5% after fees to avoid depleting capital over time. That is unlikely to come from cash alone.

This is where asset allocation becomes less about market forecasts and more about matching assets to objectives. Yes, markets are cyclical. Yes, there may be times to lighten equity exposure or rebalance. But that is very different from abandoning growth assets entirely. If your long-term goal requires long-term growth, a portfolio made up only of defensive assets is unlikely to get you there.

Why a slightly more defensive stance may make sense now

A key nuance in the discussion is that caution does not have to mean going to cash. Eddy is careful on this point. The argument is not that investors should abandon equities. It is that, after a very strong five-year period and with valuations looking relatively stretched, it may be sensible to be a little more defensively positioned than before. This view is not framed as a reaction to the latest geopolitical crisis. It is framed as a response to valuations and forward-looking return assumptions.

That is especially relevant in South Africa, where defensive assets are arguably more attractive than they have been in many other periods. The webinar points to relatively high real yields in local fixed income, including inflation-linked government bonds offering around inflation plus 4.5%. In other words, defensive assets are not necessarily offering the same meagre forward returns they once did. At the same time, equities, particularly in the US, appear more expensive than they were a few years ago. In that context, trimming risk and rebalancing back towards strategic targets can look more sensible than simply letting the winners keep running.

Strong recent returns may have pulled future returns forward

One of the more interesting technical points in the webinar is the idea of the equity risk premium. Put simply, this is a way of thinking about how much extra return investors are being compensated for by owning equities rather than bonds. The transcript notes that this premium has compressed across multiple markets in recent years, and that compression itself has helped drive the exceptionally strong realised returns investors have enjoyed.

But that strength may create a problem. If some of those future returns have effectively already been pulled forward by rising valuations, then the return outlook from here may be more muted. That does not automatically mean equities have to crash. It could also mean earnings have to catch up, or that bond yields fall and bonds deliver stronger capital returns. The point is not to predict the path. It is to recognise that after a very strong period, forward-looking returns may be lower than what investors have recently become used to.

Defensive assets may now be offering more than investors assume

One of the clearest takeaways from the discussion is that defensive assets should not automatically be dismissed as dead weight. Historically, equities have delivered stronger real returns over the long run, with bonds and cash lagging behind. But the transcript notes that if you look out over the next five to ten years, current bond yields and current equity valuations suggest a somewhat different balance. Defensive assets may offer higher forward-looking returns than they have on average historically, while equity return expectations may be more compressed than the long-term average.

That does not overturn the case for long-term equity exposure. It simply strengthens the argument for balance. A long-term portfolio should still hold all of these assets, not because every asset class will outperform all the time, but because the future is uncertain and diversification is how investors avoid betting everything on one scenario.

Concentration risk can creep up quietly

Another point worth highlighting is that investors can become more concentrated without ever making an explicit decision to do so. The webinar uses the example of Regulation 28 portfolios and US market concentration. Years ago, offshore exposure in South African retirement portfolios was lower, and the US made up a smaller proportion of global equity benchmarks. Today, offshore limits are higher and the US makes up a much larger share of global indices. That means many investors may now have more embedded exposure to one market, and one set of expectations, than they realise.

That would be less of an issue if valuations were modest. But they are not. The webinar argues that current prices are already assuming a great deal of future earnings strength from US companies, particularly in areas like tech and semiconductors. These may well remain exceptional businesses. But exceptional businesses can still be poor investments if too much optimism is already in the price.

Valuations only resolve in two ways

The final big idea in the discussion is a simple but powerful one: elevated valuations can only justify themselves in one of two ways. Either the earnings come through strongly enough to support those prices, or valuations reset. The transcript points to long-term analyst earnings forecasts that are already extremely optimistic, with the S&P 500 sitting just below 20% and some more concentrated sectors much higher. The concern is not that these businesses are poor quality. It is that expectations are already exceptionally high.

That is why this is really a conversation about expectations, not panic. The point is not that investors should brace for disaster. It is that they should avoid assuming the next five years will look like the last five. After a period of unusually strong returns, a more grounded set of return expectations and a more balanced portfolio may be exactly what good long-term investing requires.

Staying invested matters more than sounding clever

If there is a final takeaway from the webinar, it is that successful long-term investing is usually less about making heroic calls and more about avoiding costly mistakes. Markets will remain unpredictable. Headlines will keep shifting. Narratives will change faster than portfolios should. But for retirement investors, the aim is not to guess every twist in the road. It is to build a portfolio that can live through uncertainty, deliver the real return required for the goal, and avoid becoming dangerously concentrated after a run of strong performance. In a world that feels increasingly noisy, that kind of discipline may not be exciting, but it remains one of the soundest investment principles there is.

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