Spare a thought for the poor journalists in South Africa: they have barely finished one story, when another scandal hits.
Last week is a perfect example. The daily and Sunday papers were filled to the brim with political scandals in South Africa, the US and elsewhere, economic problems here and abroad and anything in between.
This was the topic of a radio discussion that we were invited to on Friday November 4 at RSG Geldsake. What, if anything, should be done about all this noise in the market and how should it influence your investment portfolio?
It is true that many investors, especially those who have retired or are retiring soon, watch the news with trepidation. Every new scandal seems to move the markets, which is already showing signs of a general slowdown in the current economic climate.
And one cannot argue that the negative news and depressed economy is influencing your retirement portfolio. Over the last 12 months for instance, the overall JSE has declined by 7% and from week to week many indicators swing wildly from positive to negative growth.
What is interesting, is that the investors who take the largest loss and see the biggest decline in their portfolio, are those that panic and try to react to the newest short term scandal and its impact on the market.
Apart from incurring costs by hurriedly extracting or moving his or her investments, this investor often loses out on the initial growth spurt thereafter, when the market recovers from the short term movement.
Here are two of the pieces of advice that we discussed on RSG Geldsake:
Stick to the plan
A good investment plan, with well-defined end-goals and clear investment parameters will almost always outperform those investments that try to time the market or that reacts to every bit of bad news.
Apart from giving consistent long-term growth, a solid investment plan saves you the stress of worrying about every move in the market.
In difficult markets such as these, it is prudent to invest as much as possible in more stable and better performing offshore investments. The South African government, through Regulation 28, restricts this investment to 25% of a portfolio and we usually advise that you make maximum use of that.
One should also keep in mind that most of the Top-40 listed companies on the JSE make the bulk of their income abroad, so simply investing in these shares can give you indirect exposure to offshore markets.
In conclusion, you should never panic, because panicked decisions cost you dearly. To help with that, create a long term plan and increase your exposure to off shore investments. Lastly, get a professional Certified Financial Planner (CFP) on your side and they will help you keep calm and plan for the long run.
Listen to the RSG Geldsake interview here.