Pieter Hugo, Chief Client and Distribution Officer
Over the past three years, investors have experienced quite a tumultuous time in global and domestic markets. Markets had very little runway to recover from the pandemic-induced market shocks. Last year, volatility was elevated due to heightened uncertainty, fanned by stubbornly high inflation and rising interest rates, subdued growth prospects and geopolitical tensions. Market expectations point towards a continuation of these investment themes driving markets in 2023 and beyond.
When looking at the market reaction to different events over the years, including the COVID-19 market crash and Russia-Ukraine war, and sharply rising interest rates, among others, you can see that there is no way to predict how and when the market will move. Volatility is a natural part of investing in growth assets, but continued volatility can be uncomfortable, even for the most astute investor. However, volatility can work in your favour, too, as it provides opportunities to buy assets at relatively reduced prices. At certain times, it’s best to do nothing, allow the volatility to play out and the reward could greatly benefit you in the long run.
Typical investor behaviour during periods of sharp market declines is a knee-jerk response to switch away from equity to the “safety” of cash to avoid losses. But when the markets recover, those who disinvested miss out on the upside because they’re sitting on the side lines. By the time they get back into the market, they’ve missed the opportunity.
The graph highlights the missed opportunity when comparing the returns of South African (SA) equity (using the FTSE/JSE All Share Index as a proxy) to SA cash (using the SteFI Composite as a proxy) over a 10-year period to December 2022, which was a particularly challenging period for SA equities. Investors who switched out of equities in favour of cash during this period would have missed out. Trying to time the market by attempting to predict when markets will recover could mean missing the potential upside and locking in losses.
During the most recent three-year period, the graph highlights how the market corrections offered enormous opportunity for those who remained invested through the ups and downs.
Remain focused and stay on track
Spend time focusing on your holistic financial and retirement planning rather than trying to time the market. At M&G Investments, we consistently monitor the market for opportunities that arise during the various market cycles, making tactical asset allocation calls and stock-picking to the benefit of our client portfolios.
Remember that sticking to a carefully crafted long-term financial plan with suitably diversified asset exposure is the most likely avenue to help you achieve your desired investment outcome over time, regardless of market movements. Staying consistent in your approach will reap rewards in the end. For long-term investments, such as retirement savings, this approach is even more relevant.