3 important investing principles to remember when markets get scary
South African investors are nervous and for good reason. With a sluggish economy and weak Rand, worries over uncertain land expropriation policies and fears that the often market-leading US stocks are set for a correction, many people are wondering if they should sell up or stop investing.
But Murray Anderson, Managing Director Retail and Commercial at Ashburton Investments, said that people should avoid being ‘fair weather investors’ and focus instead on three time-tested guiding principles for successful investing.
Number 1: Don't make a mountain out of a molehill
Said Anderson: “South Africans have experienced low to no returns from the JSE over the past few years and are currently facing yet another barrage of negative news. It’s important to not be drawn into a spiral of negativity, which is usually short term in nature, since markets move from extreme to extreme.”
At times like these the best action is to review the goals you were investing for. And for most people that goal is a comfortable retirement. “Ask yourself whether the plan changed and if you have time on your side. If the answer is yes, then there is a very good chance you are still on track,“ Anderson advised.
If your portfolio doesn’t have sufficient global exposure, then it is best to sit down with your financial planner. However, you don’t want to be rushing to the door when the Rand is at extreme levels. Consider waiting for an appropriate level to take money offshore. There are a number of way to do this, either directly offshore or via an asset swap fund.
“Many South Africans have their funds tied up in retirement savings vehicles, which should be well structured along Reg 28 guidelines. When it comes to discretionary savings however one has a few more options. Leaving your funds in cash isn’t a bad idea to protect capital in the short-term, but one must not be complacent and forget to make an asset allocation decision down the line and move into higher return assets such as equities.”
Anderson also noted that there was a compelling argument to take as much money offshore as possible. He cautioned however that when there is bad news all around, great buying opportunities often present themselves under our noses. “With a little deeper research investors can achieve fantastic returns from local shares. So, don’t be scared off by all the bad news and go offshore and buy potentially expensive assets,“ Anderson added.
Number 2: Spreading risk and diversification
It is said that the only free lunch in investments is diversification. Diversification means you are not committing all of your capital into one asset class or one geographic region but rather spreading the risk to help smooth out the path to achieving a financial goal.
“Investors in South Africa are fortunate in that they have options to create global diversification without physically taking money offshore,” said Anderson.
“Asset swap funds permit South Africans to invest Rands (in a unit trust fund based in Rands) which give you exposure to global equities, global balanced funds and even global fixed income should you wish. Speak to your financial advisor or if you feel you want to be a DIY investor there are a number of great online sites from the mainstream asset managers that will enable you to execute your diversification strategy. There are also a number of Exchange Traded Funds (ETFs) which are listed in Rand on the JSE and give investors low cost offshore exposure,” he added.
Number 3: Riding it out through the doubt
If one has a well balanced portfolio, spread across global asset classes and you feel that the manger(s) you have allocated your funds to will work to navigate the global markets, then often when times are perceived to be ‘tough’ the best thing to do is trust the plan and stay the course.
“Ride it out through the doubt,” Anderson advised.
“Historically investors have destroyed value by chopping and changing funds to try to achieve better than market returns. This strategy more than often fails and if one had stuck it out with the original fund manager then things would have worked out just fine. Markets move in cycles and not all managers deliver the same results but rather deliver different outcomes at different times in the cycle. Stay the course.”