By: Kim Zietsman, CFA, Laurium Capital
Industry net flows are a good barometer to gauge the sentiment or perspective of investors in the current environment. Looking at the South African CIS funds, for the 12 months ended 30 September 2023, general equity funds had net outflows of -R5.8bn. Low, medium and high equity multi-asset funds had net outflows of -R10.6bn (distorted by large outflows from low equity funds; medium and high equity had inflows). Regional, worldwide and global funds had a net outflow of -R27bn collectively.
In contrast, income funds, other interest-bearing funds, and money market funds had net inflows of R26bn. It is clear then that there has been a big move away from risky assets into more conservative portfolios as investors try to time the markets. In life, as in investments, having perspective is important. Perspective is something all investors need to have, whether markets are rising or, particularly, when markets are volatile. It is often difficult to keep things in perspective, especially when faced with uncertainty and volatility. In South Africa especially, we have additional stress over loadshedding, crime, corruption, poor economic growth, unemployment, uncertain political outcomes, etc. This can affect our perspective, creating a negative bias, where we tend to focus more on the worst-case scenario and what is not working rather than on the positive things happening around us. Taking time to keep things in perspective allows us to react rationally rather than impulsively, resulting in a more balanced viewpoint.
Markets are cyclical, and volatility is an inevitable characteristic of investing in the stock market. Having perspective can help you ride out market volatility and ensure you remain disciplined with regards to your long-term investment strategy. Investors should look at the bigger picture and remember how markets have performed over the long term.
Adopting the right strategy is key – ensuring you have a balanced, well-diversified portfolio that is exposed to the degree of risk that you are comfortable with, and which meets your long-term goals.
Rand cost averaging is another way to smooth out the risk of price volatility in the market. By phasing in an investment over regular intervals, instead of allocating a lump sum, you are buying both when prices are high, and when prices are low. A good way to do this is to set up monthly debit orders into your portfolio. This provides a more structured, disciplined way of investing, with less stress of trying to time the market. There is clear evidence that market timing is difficult. Frequently, investors will sell early, missing out on a stock market rally. Timing the market often results in a poorer outcome for investors and is not a sustainable long-term strategy.
Rebalance your portfolio on a regular basis – over time your allocation to equities, fixed income, and property will drift depending on the market. It’s important that you make the needed adjustments to keep your portfolio in line with your stated objectives.
Retirement is a long-term investment – be patient and contribute as much as possible so that you can make every rand count.