Don't simply change your investment strategy

By Janice Roberts

Tandisizwe - Low Res

Tandisizwe Mahlutshana, Executive of Marketing at PPS Investments, explains why investors shouldn’t react emotionally when making investment decisions.

Investors have been taken on a rollercoaster ride by the markets in times. Dominating the headlines were Black Monday in China, fears of Brazil entering the reces­sion and a delay in the commitment to raise US interest rates, due to weak global growth.

We have also seen uncertainty in our local market where currency weakness caused panic around local stocks, only to see some improvement months later. Much of the improvement can, however, be attributed to a weakening dollar.

This uncertainty can make investors react emotionally when making investment decisions. When faced with tem­porarily plummeting stocks, it is easy to lose sight of the longer-term goal for fear of losing investment value. Some investors resort to often unsuccessful attempts at trying to time markets and choose to move their investments into wrong assets.

Apart from being charged penalties for switching or getting into and out of certain investments, investors also tend to lose a lot more from their investments. They could, for instance, be exiting an underperforming investment at a time when it has reached the bottom and is geared for a recovery. They could, instead, be choosing an investment that has been outperforming and which now has reached its peak and beginning its downward movement.

It is often tempting to look at news headlines, current or past performance or how your peers are investing and base investment decisions on these in isolation of your personal circumstances or long-term investment goals. Here’s why you probably shouldn’t base your decision to disinvest solely on:

Economic and market news
The reality is that news is a perpetual feature when it comes to investments. Moreover, while it is not always good news, it is however a reflection of the cycle that market and economies inevitably tend to ride. Markets go up and down all the time and the news will simply mirror their trajectory and sometimes, vice versa. If there is news that unsettles you regarding your investment, talk to your financial adviser to find out if it warrants a change in your investment strategy.

There will be news that should make you act to protect your investment however. For example, if a particular asset in which you may have been invested is likely to have negative growth for the next, say, five years, and you intend retiring also over that period. In this case, you may want to recon­sider, with the support of your financial adviser, whether you should remain invested in this asset, or start de-risking.

Short-term performance
Investments hardly go up consistently all the time. There are times where they experience short-term volatility and therefore weak performance. Likewise, seeing a particular asset outperform over the short-term should not neces­sarily sway you into believing that it is the asset for you. This should generally not affect your long-term valuation of the investment, or your long-term investment plan. If you decide to get into such an investment you may get in at the wrong time – and timing the markets is seldom fruitful.

Past performance
Past performance is a good indicator of an asset’s ability to generate growth. However, that does not mean that that asset will continue to generate growth as it has in the past. Good assets have more than just past performance to give investors comfort. Among other things, this includes the management behind the asset, the investment strategy and the asset’s long-term vision.

A peer’s investment strategy
It is always a good thing to learn from others and share ideas but be careful of changing your investment strategy because your friend’s one is doing better at the moment.
As an investor you should allow your long-term investment plan to have its time in the markets. This is provided your plan is well diversified across asset classes and across different investment styles of asset managers. In this regard your investment and your long-term plans will not be influenced by short-term market volatility.

If you feel the need to amend your financial plan, make sure that your decision to do so is informed by good independ­ent insight and that you have consulted with your financial adviser.

Tandisizwe Mahlutshana is Executive of Marketing at PPS Investments


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