Don’t allow news events to influence retirement planning

Although [news] events, good and bad, may shape investor sentiment, they shouldn’t interfere with your retirement planning. In SA, hardly a day goes by without an unnerving headline putting you off the country, or the stock market at least. Most likely that’ll be countered by incredible optimism, often on the same day.

If your investment plan is to wait for calmer waters before getting into shares, chances are you’ll never get onboard … or reach your financial goals.

Many people avoid the stock market because it can seem like a crapshoot. There really is no saying where it’ll go next. The daily news flow affects the ebb and flow of investor sentiment. SA has always been a noisy place, but now we’re at a crescendo. It’s not exactly a feel-good environment encouraging investing in the JSE.

From a historical perspective, the probabilities massively favour equities. If you’re investing for longer than five years, you can have a high degree of confidence you’ll do better with an index fund replicating the broad share market than with your savings account.

The longer you plan to invest, the higher your comfort level should be. Over 30 years, there hasn’t been a single instance when you would have smiled holding cash over equities. In fact, the highest return from cash over any such period (3.7%) is still below the worst return from equities (4% per annum).

Just as instructive is the difference in the long-term compound real return of these two asset classes: 7.3% pa for SA equities, 1% pa for cash (R1 growing at 7.3% pa turns into R8.30 after 30 years; R1 growing at 1% pa, R1.35). One will help you fund a decent retirement if you save adequately; the other will lead you to the poor house.

Of course, future returns are uncertain and not guaranteed, but it would take a brave person to bet against a 120-year track record.

Yes, we are in a mire with some issues. But understand that these are the same feelings investors had in the 70s, 80s, 90s and 00s. Every time, we overcame our problems.

And that’s the point: we’re talking about temporary negative emotions stirred by the news cycle.

It unsettles us today, but tomorrow it’s in the trash and, within a day or two, out of mind. Pick up a paper from a year ago, and you’ll realise that almost none of it mattered.

And while you dithered, the stock market went up another 20%.

Steven Nathan is CEO of 10X Investments