Stay The Course

Businesses have been hard hit in 2019, and economic growth slowed beyond what we expected. Whether you are a newbie or a veteran investor, it’s been a tough year in a series of tough years, and almost everyone is looking at their savings and investments, and lamenting the growth they haven’t seen.

“We are in a strange time, from an investment point of view,” says Izette Greyling, an independent financial adviser at Financial Fitness. “This is a very long time not to have good growth. Normally we say after five years your investments have settled and gone through volatility and you will start seeing proper growth, but that has not been the case.”

So what do you do with your money when the going gets tough? Stuff it under the mattress? Put everything on black – no, red – and let it spin?

If you’ve taken the time to set financial goals for yourself, the experts say your best bet is to stay the course.

Start with a goal, and stick to it

“The starting point of any investment is to identify the objective or the goal [you] would like to achieve,” says Katlego Mei, a financial planner at Verso Wealth. Your objective would then determine your tactics. So, says Mei, if you have a short-term goal (say, one or two years ahead), “then it has never been a good idea to expose such an investment to growth assets such as equities (shares) and listed property. The ideal asset class for such an investment has always been money market or income funds.”

Alternatively, if you are investing for a long-term goal such as retirement, he says, then those very growth assets will be needed.

Don’t let fear drive

Gerard Visser is a financial planning consultant at Alexander Forbes. He knows the stresses and trigger points that people are facing. Bad news dominates the TV and radio, making people nervous about market performance and unsure of where to put their savings. Like Mei, Visser cautions that it is important to avoid “corridor talk” that drives panic, or at the very least, not let it drive your investing decisions.

He believes that clients investing in portfolios where there is equity exposure need to understand that that you can’t time the market. “These portfolios are specifically set up to achieve a targeted benchmark, set out by the asset managers over certain rolling periods,” he explains. And they target real growth over longer time periods – growth that keeps up with or outpaces inflation. To do this, they must take certain risks, and returns are not guaranteed. Sometimes time is needed to ride out volatility until a better time (i.e., not to have to extract your investment during a dip).

The worst thing you could possibly do right now, according to Greyling, “is to liquidate your investments, just because you’re getting gatvol. Doing so means you will materialise that loss. If you don’t need the money, leave it there”.

Additionally, if you have a far-off investment horizon, a dip like this can mean more bang for your buck when buying shares. “We haven’t seen the JSE so cheaply priced as it is at the moment for a while,” she adds.

Many eggs, many baskets

“It is even more important [at a time like this] to have a portfolio that is well diversified across different asset classes, economic sectors and geographical locations,” says Mei. This helps to “minimise concentration risk” where you are over-exposed to one asset class, one industry sector, or geographical location.

Simply put, if all your money is in one product or business, then your wealth is all riding on them. If that company was African Bank a few years ago, or Steinhoff last year, you would be all but wiped out when they came crashing down. If you have an investment portfolio of which shares are only one of the elements, you own a wide array of shares you’ve picked directly, or you have put money into an investment vehicle like an exchange-traded fund (ETF), your risk is split – between companies and investment types.

The Satrix 40, for example, is a well-known local exchange traded funds (ETF) option that allows individuals to buy into the top 40 companies on the JSE. This would have included Steinhoff at the time, but when they crashed out, they were only a small percentage of your overall investment. The S&P 500 ETF, for example, buys into 500 large companies listed on the stock exchange in the US.

Seek balance in portfolio and mind

Another approach is rebalancing. Nic Horn, director and regional head (Durban) at investment firm Citadel, says “the only thing that you may need to adjust or consider” (besides diversification) “is the weighting of the different components of your portfolio” – including cash, shares and other financial products.

“For instance, if you’re no longer working or earning, and are living off the income generated from your portfolio,” says Horn, “your investments should already be structured in such a way that the portion needed to fund your short-term needs is held in cash or bonds, and won’t be impacted by market volatility.”

“To paraphrase Warren Buffett,” says Horn, “it doesn’t take a stratospheric IQ to be a successful investor. Instead, it takes a plan, and the ability to stop your emotions from getting in the way of your plan.”