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The more things change, the more they stay the same…

We tend to forget many of the cycles we are currently experiencing have happened before, and that things turned out okay in the end.

There is an amazing quality about human nature I find fascinating and really beautiful in fact. We remember the good things in life. I think this is such a wonderful way we have been created… Even after experiencing a trauma, we have the ability to cut out the bad memories and hold on to the good ones. Over time, we might even completely forget what the bad memories were.

This quality, unfortunately, doesn’t work well when digesting market cycles. We are all unfortunately a little “gold-fish like”, and we tend to forget many of the cycles we are currently experiencing have happened before, and that despite volatility, things turned out okay in the end.

Taking a look at the JSE, the graph below illustrates every market crash, every war or conflict, and every political unrest in SA since the 1950s. The outcome? The market has always recovered, and in fact – grown!

Source: M&G Investments

  • If you initially invested R100 in 1950 and were invested in the market, your outcome would have been R2 358 310 in 2021.
  • If you had taken the same R100 and invested in cash, your outcome would have been R26 640 in 2021.

The value of compound interest, and riding out the different market cycles determines the success of our portfolios and financial futures. We need to remember the investment philosophy we are applying. Investing should ALWAYS remain a long-term strategy (unless we are referring to funds you will need to use within a year for example).

Even if you were to retire today, you are only starting a new investment term of 30 to 40 years and being invested in a well-diversified portfolio, you don’t have to be concerned about market movements, even at this phase in life. Ensuring you have the appropriate investment strategy and asset allocation for your personal needs and portfolio is imperative, but the market is not something to fear – we only need to see the bigger picture.

The same principles apply to the S&P 500:

  • If you had invested $1 000 25 years ago, and just remained invested – you would have an outcome of $3 949 today.
  • If you had only missed out on the 10 best days in the market, over a period of 25 years, you would have been left with 50% of the value compared to just remaining invested.

While we may think that one day on the market is much like another, the reality is that missing a few crucial days of positive performance can shape the investment outcomes you ultimately realise. Being in the market when these days occur is crucial.

A few tips when the difficult cycles do come:

  • Stay the course – nothing worth having comes easy in this life.
  • Remember your initial investment strategy, and why you structured your portfolio the way you did.
  • Work with a financial advisor. This will not only help define your goals and help you stick to them, but also take the emotion out of the equation when times get difficult.
  • Take a step back and remember the bigger picture – the market always recovers, and the outcome will be good – if you stay the course.
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