Keep a cool head

Shocks to the markets will happen, but look beyond them when it comes to investments, writes

The effect of recent political events on South African markets may have you thinking that your best bet is to move your investments out of the market and into cash.

Leigh Kohler, the head of research at Glacier by Sanlam, says at times like these, investment platforms and houses are inundated with investors asking about switching their investments into cash.

Cash investments are investments on short-term, variable-rate deposit with reputable banks and are readily available for use. Cash is free of most investment risk, except for the low risk of the bank failing.

Kohler says you need to remember that, while a cash investment may seem like a safe one, after tax it diminishes your purchasing power over time, as the returns are often not inflation-beating.

South African cash investments outperformed local equities and bonds only once in the 15 years between 2001 and 2016, Kohler says.

Over this period, you would have received an average return of 7.96 percent if you were invested only in local cash investments, 10.12 percent if you were invested only in local bonds, and 17.12 percent if you were invested only in South African equities.

If you try to move your investments into cash and back into the market when things are calm, you are essentially making two very difficult market-timing decisions: when to move out of the market and when to move back in, Kohler says.

Research shows the risks of getting that timing wrong; missing just a few of the best days on the market can have a huge