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Keep these three principles in mind to secure optimal investment returns

Keep these three principles in mind to secure optimal investment returns
Kenny Meiring
By Kenny Meiring
25 Aug 2024
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Sound financial advice for those investors worried about market volatility.

Question: I have seen several stories in social media about the imminent collapse of the US economy. We recently had a major collapse in the Japanese market and the local stock market also fell. Should we take our money out of the markets and invest in gold coins?

Answer: I cannot give you specific advice, but I can point you to three principles that may help you to make a better decision.

1. Have an investment plan


An investment plan does not consist of putting money into one asset class in the hope that this asset will do better than everything else. That is speculating. What I’m talking about is a well-considered investment plan that can do the following:

It can cope with most eventualities in your and your children’s lifetimes. Over this period, you will have markets falling and rising, inflation and recession, as well as political uncertainty. Your portfolio needs to be able to cope with these events.

It must consider the long, medium and short terms. You can expect volatility over the short term, but should be able to live with it if you understand the longer-term goals of your portfolio.

It is diversified across the various asset classes. This will ensure that your entire financial wellbeing will not be in danger if a particular asset class underperforms.

It is exposed to different countries. It is never wise to have all your investments in South Africa, the US or even Japan. A healthy spread can ensure that your financial wellness has some protection should a particular country have political or economic issues.

2. Do not make hasty decisions


Do not try to time the market. We often find that the markets hit an all-time high after a big fall.

If you are not in the market, you will miss out on that growth. Time in the market is far more important than timing the market.

Below is a table that shows how much growth you would have missed out on over a 22-year period by being out of the market on the days when it did particularly well:

Investing table Kenny Meiring

We are living in a time in which there is a high level of market volatility, and you need to be careful that you do not make the mistake of short-term thinking and panicking when the market falls. 

Before you make any decisions, you need to understand how that particular decision impacts your broader investment plan.

Let’s look at the example you cited. After falling 12%, the Japanese market bounced back by 10% over the following days. The JSE moved from the post-Japan fall to hitting an all-time high this past week. Had you panicked and disinvested, you would have locked in these losses.

3. Make considered tactical moves


There will be times when you should adjust your portfolio to changing circumstances. So, if you believe the US market is overvalued, then you could move into other markets. However, this should be in line with your bigger plan. 

It is risky to put all your eggs in one basket, so I would be concerned if you sold up everything and invested only in gold. But if you believe that gold coins will add value to your portfolio, then you could add them as one of the components of your broader investment plan. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected].

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.



 

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