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Business Maverick, South Africa, DM168, Personal finance

Beware of chopping and changing investments all the way down to zero

Beware of chopping and changing investments all the way down to zero
Warren Ingram
By Warren Ingram
9 Apr 2025
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Savvy investors are patient and know that markets fluctuate.

When your investments are not performing well, you may be tempted to take action by trying to switch them into something “better”.

This reaction is understandable, but responding to stock markets with rapid action is often a terrible idea. It turns out that our impulse to change things in times of turmoil is often the reason our investments perform worse than they should.

During 2024, South African investors sold more than R11-billion from unit trusts that invest in the local stock market. What makes this so damaging is that the JSE delivered a 13% return in 2024. Had investors made no change, their money would have grown significantly.

To make matters worse, most of the money taken from the JSE was invested in money market unit trusts, which probably increased 8% over the year. It is worth remembering that interest from money market funds is taxed as income, whereas growth from unit trusts that invest in shares is taxed as capital gains. Income tax could be as high as 45%, but capital gains tax maxes out at 18%.

This switching behaviour occurs consistently in markets around the world, prompting researchers to coin terms such as the “behaviour gap” or “behaviour tax” to describe it.

Investors tend to switch to funds that performed exceptionally well the previous year, anticipating that they will perform well again the next year. Usually, they sell out of the funds that performed poorly the previous year. Unfortunately, the worst performers from one year are often good performers in the next.

Sadly, investors switch at the wrong times so consistently that it costs them nearly half the growth they could be earning from their investments.

What should you do?


You need to find ways to resist the urge to make a change. It’s not easy, but you need to put strategies in place to protect your investments from yourself.

To start, when you own a unit trust that has not performed well, it is essential to understand why before taking any action. For example, if your investment is in global stock markets and these markets are down, it will explain why your investment is also down. If the global markets are up and you have lost money, there might be a problem.

In this instance, you will need to do further research. Don’t automatically switch – the underperformance of your fund could be for a good reason.

For example, tech shares had a phenomenal year in 2024. If you owned a fund that had limited exposure to tech shares, you might not have benefited. However, since the start of 2025, tech shares have dropped. Your underperformer from 2024 may now be the star of 2025.

Sometimes, a sector or a particular market can perform well for a few years, but eventually it will drop again. This means you must have patience when you invest.

Another way to protect yourself from poorly timed decisions is to have a properly diversified portfolio that invests across a range of markets. If you are properly diversified, you will own some of the current star performers and some of the underperformers that might be the stars of tomorrow.

Avoid the noise


If you try to anticipate which investments will perform well based on what you see in mainstream or social media, you are likely to lose your sanity at about the same time as you lose a significant portion of your money.

It is worth remembering that market commentators are adept at conveying their opinions in an engaging and confident-sounding manner. This can be very deceptive, since you might confuse convincing messaging with intelligence, but they are not the same thing.

Some of the best investment minds will often give you two or three different scenarios for the future, and they may also remind you that they could all be inaccurate. This can be confusing and cause you to doubt their capabilities. Investors who have the ability to question their views are often the most successful.

The best way to insulate yourself from media hype is to develop a long-term investment strategy that is not dependent on short-term market fluctuations. This will help you stay committed to your investments during significant market fluctuations, as short-term market movements do not significantly affect your long-term success.

Proper diversification and a long-term focus will be your best defence against uncertainty and market volatility. Investments rarely perform well every year. If you can tolerate losses over short periods, you will give yourself the best chance of participating in the recoveries that are likely to be highly beneficial to your growth. DM

Warren Ingram is a certified financial planner at Galileo Capital.

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

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