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.
People should avoid being “fair weather investors” and focus instead on three time-tested guiding principles for successful investing.
(1) Don’t make a mountain out of a molehill
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.
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 is a compelling argument to take as much money offshore as possible. However, when there is bad news all round, 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.
(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.
Asset swop funds permit South Africans to invest rand (in a unit trust fund based in rand) which give you exposure to global equities, global balanced funds and even global fixed income should you wish. Speak to your financial adviser 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.
(3) Riding it out through the doubt
If one has a well balanced portfolio, spread across global asset classes and you feel that the manager(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.
Murray Anderson is managing director, Retail and Commercial, at Ashburton Investments.
– PERSONAL FINANCE