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Sticking to your financial plan is frequently mentioned and emphasised by investment managers and financial planning professionals.
As we know, however, it is easier said than done – especially after tough financial year like 2018.
Let's face it, 2018 was a year to forget not just locally but also globally. It was identified by a Deutsche Bank report as the worst year for financial markets globally since 1901. The report measures a whole range of assets that, among others, include: stocks, bonds, property, currencies and commodities - ranging from emerging markets to developed markets; and 90% of all these assets had a negative return for 2018.
Don't lose hope
During times like this it is very easy for investors to get discouraged and lose faith in the financial market's ability to create wealth.
The longer these periods continue for, such as the last three years on the JSE, the more anxious and fearful investors become. This results in irrational behaviour and decision-making. However, this is just the time to stay calm and stick to one’s financial plan and investment horizon.
The most common mistake investors tend to make, during these tough times, is to liquidate their portfolios or move them around from one asset manager to the next. This statement must be qualified further in that if you have been invested for a sufficient period of time and your return is not in line with the market/benchmark, then moving to another manger should be considered.
On the contrary, moving your portfolio after you’ve had a negative return or low return, given it was in line with the market/benchmark, in the first few years of your investment is usually not the right decision. The only thing you are doing is locking in losses, decreasing your chances of catching the upswing and incurring additional cost which will further add to your pain.
It's a process
Investors need to understand that asset management is a process which is designed to be most effective over a longer period, such as five years, and in some cases even more.
Most asset managers, in general, don’t agree on many things, but they do agree this: the only investment that works is a long-term investment.
So, stick to your investment plan and investment horizon and don’t get anxious about short-term returns if your initial goal was to invest your money for longer. Asset management is a process and there is no guarantee in the first few years in which direction your portfolio might go.
Remember, the best time to invest is when markets are down and the best time to sell is when markets are up, not the other way around.
Werner Erasmus is Regional Manager: Gauteng for Overberg Asset Management. Views expressed are his own.
