Bear market investing

There are principles that can help fight the urge to make emotional decisions during market turmoil.

Nobody knows when the next market crash will come. Obviously, some prediction of the market’s downfall will turn out to be right. The market will go into a major slump again and share prices will fall 20% or more.

While we may believe we know where markets are headed, we don’t. The same goes for market commentators.

Which is why I don’t think it makes sense to shift your money around to outguess the markets.

If you can’t stick with your investing plan, it won’t be effective. The worst deviation from an investing plan is to pull your money out of the market when times get rough. While markets go up and down, it’s very difficult to buy at the bottom and sell at the top.

The general long-term trend of the market is up, and the less time you spend invested in the market, the lower your returns.

When creating an investment plan for your portfolio, diversification is the most important rule. Diversification’s basic objective is to reduce risk. The best way to manage risk and return together is by following a disciplined asset allocation strategy.

The asset allocation should not ignore market situations. An asset class trading at elevated valuations will have higher risk. Diverse portfolios reflect the investor’s goals and risk tolerance. They should be reassessed regularly to ensure the mix remains balanced and aligned with your investment goals, risk tolerance, financial situation and timeline.

If you have a lot of your money in cash, crashes can present a great opportunity.

The bear market following a crash has rarely ever persisted for more than a year or two at most before another bull market follows it – and it often lasts for many years.

Mduduzi Luthuli is an investment manager at Luthuli Capital