For many people, 2020 was an annus horribilis that affected their income, their holiday plans, their family and possibly even their health. It is no surprise therefore that many people are asking the question: What should I do with my investments to protect them from another 2020-style blow?
Before we look at ways you can protect, and possibly even grow your savings in 2021, let us remind ourselves of one of the fundamental principles of sound investing. Rash, short-term motivated actions based on the news of the day will never win over a consistent, long-term investment plan. As the adage goes, it is not about “timing” the market, but “time in” the market.
Always keep in mind that people who try to time the market, or who run for the hills when the news turns bad (which seems to happen more often these days), not only miss out on the subsequent growth when markets recover, but have to eventually buy back into the market at a higher cost. This often does more damage to their savings than the market downturn would have done.
With the above in mind, here are a few important considerations:
- Diversify beyond our borders
In one of my regular talks to professionals in the industry, I remind them that South Africa is a 1% country. The stocks traded on the JSE represent less than 1% of global investment opportunities.
Thus, by focusing all your investments only on South Africa, you are excluding yourself from 99% of the global opportunities as well as market sectors that may not be available locally.
- Beware of get-rich-quick schemes
While pyramid schemes have always been a dime a dozen, they are now more prevalent than ever. This is partly because people are desperate in the current economy and partly because the Internet makes it possible for international scammers to also market their schemes to South Africans.
At the moment, the most topical schemes all revolve around Bitcoin and other cryptocurrencies, but like the mythical Hydra with its many heads, it will take on many different shapes in the year ahead.
- Don’t underestimate the value of good advice
Research done by Vanguard in America found that the value of receiving good advice can add additional growth in returns of up to 3% per annum. This potential additional growth is achieved by the following factors:
- Suitable asset allocation
- Behavioural coaching
- Draw Down strategy
- Total-return versus income investing
- Don’t stop investing
Baron Rothschild, an 18th century nobleman, famously said that if there is blood in the streets, even if the blood is your own, you should buy property.
From this we should learn that the best time to buy is often when it looks and feels like the worst time. It also means that even if you have taken a financial hit, it would be in your best interest to continue investing, because you will never get this time back and catching up later is much more costly and difficult. It also helps you to maintain that investment discipline, which will benefit you greatly when you retire.
We enjoy shopping when merchandise are on sale. Why is it any different when it comes to investing when the markets being on sale?
Seriously consider the assistance of a truly independent CFP® certified financial advisor. Well-qualified advisors, with post-graduate degrees in financial planning and open access to the thousands of investment options, not just the limited product suite of their employer or investment company they are linked to, will help you steer the course and keep a cool head in turbulent times.
Martin de Kock is a shareholder and director of Ascor® Independent Wealth Managers