By: Andrew Duvenage – NFB Financial Services Group
Recently, more so than in the last couple of years, our clients our asking if now is the right time to invest; markets are high, the Rand is high, terrorism is high and even the price of milk is at an all-time high. We in fact have some clients who have been asking these questions for the last couple of years whilst in a few instances the funds have remained in suboptimal assets that are not properly aligned to a long term goal and thus earning returns below inflation.
We will concede, even to the point of empirical evidence, that there are better and worse times to invest. Far worse than investing at the wrong time is not investing at all. There is a study done from January 1997 to September 2014 that show if you invested R100 000 in the JSE Al Share index over this period it would have grown to R795 335. If you had missed the top 20 out of the 6 483 days your return would R256 351 or roughly two thirds less. The point being that you cannot time your market exposure and not being invested leaves you vulnerable to subpar returns. It is fine at certain times to have a higher than required cash position but this should be a tactical decision and not a strategic decision.
- Have a plan
- Implement your plan
- Be real
In order to stay focused and avoid the perils of emotional investment decision it is important that you have a long term plan. This plan does not have to be complex one, formulated by a team of actuaries, but should include some broad basics like your time horizon, liquidity needs, propensity for risk and family circumstances. You should revert to this plan when making future decisions and change it if necessary; it does not have to be rigid. If you have 20 years to invest your entry point in to the market makes far less difference.
Once you have a plan you must implement and not try to time the investment by waiting for specific market or currency levels. If you and your advisor think the asset is perhaps expensive then you can phase-in over months or even years and thereby average your entry point.
Don’t berate yourself for not having bought the Rand at its low or a share after it crashes. If you stay invested for the long term you will enjoy benefit.
A last point to make, and slightly off the topic, is around return expectations. We have over the last decade enjoyed returns way in excess of inflation. These type of returns are not sustainable. An equity focused asset should deliver inflation plus 5-6 percent per annum over the long term. In the context of the South African market this means a return of 11 to 12 percent per annum and in global market this translates to 6 or 7 percent in hard currency.
Stay invested, stay diversified, stay balanced and stay real. Good luck
Stephen Katzenellenbogen is Director of NFB Financial Services.