Your wealth in troubled times
The recent turmoil in South African markets and politics has been enough to make even the most experienced investor feel queasy. It is easy to become despondent and make the wrong decisions, such as cashing-in your investments in favour of the so-called “safety” of cash.
When it comes to investing, political and economic uncertainty is to be expected. Instead of making a hasty decision based on emotion or following the herd, you should revisit your reasons for investing and then make sure that you follow a well-constructed plan in order to achieve your financial goals.
The basics of investing do not change even when the market is in turmoil. You should start as early as possible and make saving a priority. By so doing you will benefit from the compound growth that will accrue though reinvesting your returns. You should aim at constructing a diversified portfolio of investments rather than having all your eggs in one basket. It is prudent to build a solid foundation consisting of incomegenerating assets together with more adventurous assets such as equities or shares which are expected to grow above inflation over time. You should choose the right blend of investments and only put your money in types of investments that you understand. You should invest for the longterm, rather than trading in and out of the market. There is no such thing as a truly riskfree investment; however, if you diversify your portfolio, you will be able to reduce your overall risk.
Trying to time the market is usually a fruitless exercise. If you decide to make sweeping changes to your portfolio during turbulent times, you may run the risk of permanently banking any losses you may have incurred by making an ill-timed decision.
Similarly, if you decide to stay out of the market to wait for conditions to stabilise before taking action, market reversals often occur quickly and unpredictably and by the time you take action, you will quite possibly have missed the opportunity. No one, not even an investment guru such as Warren Buffet, can consistently predict with perfect accuracy when the market will turn – upwards or downwards.
During times of turmoil the best thing to do is to stay calm, remain patient and avoid making decisions which may result in the permanent loss of wealth.
Markets do go up and down in the short term, but if the experience of the past one hundred years is anything to go by, the trend has always shown an upward trajectory over the longer term. Instead of listening to the “noise” associated with the current po- litical and economic environment, rather focus on making sure that your investment portfolio is appropriately positioned for when the inevitable upswings or downswings do occur.
A Certified Financial Planner will be able to assist you to partner with committed and competent fund managers who have systems in place to protect and manage your investments during volatile times. • Rands and Sense is a monthly column, written by Ross Marriner, a Certified Financial Planner® with PSG Wealth. His Financial Planning Office number is 046 622 2891