Back to Basics: Investment 101; think long-term!

As the year draws to an end, it’s a great time to reflect. I can well imagine the questions many South African investors will be asking themselves as they look back on the year that was; “what happened to my investment portfolio?”, “Am I invested in the appropriate asset classes?”, “Is the strategy of my investment manager best-suited to my desired investment outcomes?”, “Should I withdraw and hold my money in cash?”

The local and global equity markets of 2018 can best be described as tumultuous. Market volatility and uncertainty was enough to keep any investor up at night. It’s easy to have become a sceptic amidst Brexit, Donald Trump’s controversial presidency, Turkey, China, emerging markets, Steinheist, Rand weakness, stagnant growth, state capture… and the list goes on! It all seems a bit much, doesn’t it?!

It doesn’t help when you look at the performance charts (rolling 12 month returns) of some of the world’s major Equity Markets either;

  • JSE All Share Index – South African Equity Market (-11.27%)
  • SA Listed Property (-25%)
  • MSCI World Index (-2.96%)
  • MSCI Emerging Markets (-15.11%)
  • S&P 500 – US Equity market (+4.76%)
  • FTSE 100 – UK Equity Market (-0.72%)

The all-important question is; what do I do now?

The simple answer is; stick to the plan!

The advantage of reflecting on tough times is that it compels us to go back to the basics. The same is true for investing. It is key, at every stage of your investment journey, to heed the fundamental principles of investing;

  • Invest with a long-term view.
  • Don’t be swayed by short-term market movements, stick to your strategy.
  • Risk is not to be avoided, but to managed through diversification
  • Asset allocation is key.
  • Keep your costs of investing low.

Staying invested when markets are down is a hard discipline. However, the opportunity cost of missing the upswing when markets do eventually turn is a hefty price to pay. It is natural human behavior to want to withdraw when the market has dipped and reinvest when there is an upswing. Historically, this strategy (known as timing the market) has proven unsuccessful. Over the long-term, the market rewards the disciplines of diversification, patience and sticking to your investment strategy. The old investment quote rings true;

It’s not about timing the market, it’s about time in the market

Rand-cost-averaging is an effective, wealth-building strategy where an investor invests a fixed amount at regular intervals over a long period of time. The amount of money invested remains the same over time but the number of units purchased varies depending on the market price of the units at that time. When markets are down, the investor purchases more units (much like a ‘Black Friday’ special) and when markets are up the investor purchases fewer units. This strategy eliminates the risk of trying to time the market.

Here is an illustration of how Rand cost averaging works:

 

The value of sound professional financial advice, especially in the stormy waters of a turbulent market, cannot be discounted. Often, the difference lies in the guidance provided by your financial plan, sticking to it when times are tough and reviewing the plan regularly. At Harbour, we are committed to our investment philosophy and process. We adhere to the fundamental principles of investing. Please speak to one of our experienced and qualified Wealth Planners to assist you. Think long-term. It pays to be in the long-term game!

We would like to take this opportunity to thank our loyal clients for their support this year, and welcome all our new clients to the Harbour family! We would like to remind you of our office closing from Thursday 20 December 2018 and re-opening on Wednesday 2 January 2019. We wish you all a wonderful festive season and look forward to partnering with you again in 2019!

Scroll to top