SA investor behaviour to hit savings?

While the ebbs and flows of markets are always going to keep investors on their toes, it appears South African investors may be too quick to chop and change their portfolios during times of heightened economic uncertainty and market volatility.

And as growing geo-political tensions show that volatility isn’t going anywhere quickly, knee-jerk reactions are likely to be detrimental for investors’ portfolios and ultimately lead to disappointing investment returns.

The Schroders Global Investor Study 2019 revealed that the majority made immediate changes to the risk profile of their investments during the volatile final three months of 2018.

The end of 2018 was a particularly volatile time for not only the SA economy, but also the broader global economy, with the MSCI World index of global equities falling sharply amid rising geopolitical risk and growing concerns for the global economy.

In response to this market volatility, 74% of SA investors made changes to their portfolio’s risk profile.

This implies that people became fearful and made hasty investment decisions – something that is never advisable to do.

These rushed portfolio switches undoubtedly contributed to the short-term investment approach that many SA investors appear to be taking.

The study shows that the average SA investment horizon is 2.8 years, but 39% of local investors stay invested for less than a year.

Most experts advise against investing in shares for any period shorter than three years.

This is because it’s not possible to read the market and in any shorter period there is less time to win back any losses.

Based on the belief that geopolitical risk isn’t going away any time soon, investors need to take a longer view – even during periods of heightened uncertainty.

While ignoring these risks and remaining invested for longer may mean greater volatility over the short term, this strategy is likely to leave investors better off in the long run.

Abbott is Schroders South Africa Country Head