Avoid being ‘fair weather investors’

By: Murray Anderson Managing Director, Retail and Commercial, Ashburton Investment

South African investors are nervous and for good reason. 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.

Number 1: Don’t make a mountain out of a molehill

South Africans have experienced low to no returns from the Johannesburg Stock Exchange (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.

Number 2: Spreading risk and 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 swap funds permit South Africans to invest rands (in a unit trust fund based in rands) which give you exposure to global equities, global balanced funds and even global fixed income should you wish. 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.

Number 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.

Historically investors have destroyed value by chopping and changing funds to try to achieve better than market returns. This strategy more than often fails and if one had stuck it out with the original fund manager then things would have worked out just fine. Markets move in cycles and not all managers deliver the same results but rather deliver different outcomes at different times in the cycle. Stay the course.