It’s rough out there if you are actively investing on the stock exchange or if you actively track your own retirement portfolio.
Over the past year and a bit, the market has swung violently more than once, only to correct again with more vigour or drop even further before most private investors could react.
Some of the changes were expected by the market and often factored into the price of shares and currency, such as the recent downgrade in South Africa’s investment status, and some movements, such as Nenegate, Brexit and President Donald Trump’s win, caught the markets off guard.
For many investors, the news of these events makes them grab their phones, check the news and then check their own investment portfolios. If the market moves are especially large, they use the same phone to call their broker or financial advisor to ask that their funds be moved or re-invested elsewhere.
While this reaction is not unexpected, it is almost always the wrong one. To try and time the market, or to react to a major market shift after it had happened usually places the investor at the greatest disadvantage.
There are many reasons for this:
- Fees: Moving investments from one type of stock to another, or from equities to the money market, will attract fees that will cancel out some of the future growth that the new investment will attract.
- Uncertainty: Just as you did not foresee the first major market move, you may not see the next one and subsequently lose out on growth or lose additional invested capital if your new investment also declines unexpectedly.
- Taxes: Cross border transactions and transactions where you have made a capital gain will attract additional taxes, which lead to an additional loss in your investment.
- Delay: It takes time to move your capital from one investment to another and if you are actively managing your portfolio, it takes time to react to any market movement. This will inevitably mean that you will lose more capital as the markets decline before you have time to react and you may lose some of the growth potential in the market when you then react and invest in a stock, fund or market that is growing well.
When trying to time the market the investor must be correct twice……when to leave the market and then again, when to re-enter the market. This is almost impossible to do!
Question is – who will ring the bell to indicate the turnaround?
When it comes to timing the market, the adage still holds true: Timing the market does not work, time in the market does.
To make the most of your investment, it is vitally important that you plan your investment strategy with your financial advisor before you start investing. Once decided, you should then stick to this strategy and not deviate from it.
In doing this, your CERTIFIED FINANCIAL PLANNER (CFP®) can be your best ally. A good financial planner, with some years’ experience, will be able to compare different funds or types of investments, give you a clear overview of your fund fees, give you advice on where and when to invest and, in the case of large market corrections, help you to calm down.
For the best possible growth potential, it is important to find truly independent financial advisors, such as Ascor Independent Wealth Managers® (Recently awarded best independent advisor firm in South Africa by International Advisor Magazine). Ascor is not beholden to any fund, fund manager or financial services group and will be able to give you an accurate bird’s-eye view of the market, investment options and your funds’ growth potential.