Keep a cool head

Last updated on 12th December, 2017 at 05:11 pm

Make no mistake; times are tough in South Africa. So, how and where do you invest in these challenging economic times, consumers keep on asking themselves.

Don’t panic

No matter how bleak the current economic situation may look, the last thing investors should do is panic. Equally important is not to try and ‘time’ the market; even the professional investors seldom get it right. Rather stick to the tried and tested adage, namely that it is time in the market that is important, not timing the market. Presuming that right from the outset, an investor had followed the golden rules of investment, namely to determine your risk profile and your investment term, and to choose the investment products best suited to your profile, there should be no cause for alarm. In the longer term, the markets are bound to recover. New and existing investors should therefore try and keep a cool head, always bearing in mind that even though conditions may be tough, volatile and uncertain, investing in a diversified investment portfolio over time, preferably no less than five years, will deliver far better returns on your money than if you had just left it in your bank account earning interest. In fact, irrespective of external circumstances, factors and timing, a diversified investment portfolio is the best route to go for any investor, precisely because it is designed for times like these. While a portion of the portfolio typically tends to outperform during an economic downturn, the other portion traditionally delivers the goods in a recovery phase and upturn. One factor that does play a crucial role in influencing your prospective returns is the valuation of the asset class when you invest. For instance, you can severely jeopardise your chances of earning an attractive premium if you buy shares when they are overvalued. Conversely, you can earn attractive returns if you buy them when they are cheap.

Don’t buy and sell shares indiscriminately

While you do have to revise your investment portfolio from time to time and adjust it according to changing needs and goals, market volatility alone does not warrant a change of investment direction. Neither does it warrant selling or buying new shares. Although it may be tempting, both existing and new investors should also refrain from lending their ears to small talk around braaivleis fires about potentially attractive investment returns from high-flying companies. When you consider your investment’s viability over the next three to five years, rather check whether the company has a solid management team, strong financials, access to capital and is expected to continue to lead in its field.

Better performance, lower growth

Indeed, certain assets do outperform others in volatile conditions, for example, low-risk funds. However, over the longer term they also tend to provide lower growth. Along with your financial planner, it may now also be a good time to re-evaluate the amount of risk you are comfortable with in your portfolio and adjust it accordingly. Investors should find the level of risk in their portfolio that they are comfortable with, whether it is an up market or a down market. At the end of the day, investing requires diligence and patience – at any given time. Once you have decided on a strategy and time horizon, you need to simply wait it out and let the plan unfold. With the right investment strategy best suited to your needs and goals, your investment should reap the desired benefits.

By Wilma de Bruin