Investments: Sometimes doing nothing is doing something!

Investors have recently experienced a drastic bout of market volatility that caused a see-saw of emotions. Such levels of volatility have exacerbated the uncertainty of investment performance and contributed to low confidence in market recovery. So, it would seem like the perfect time to adjust an investment strategy or cash out investments, right?

Wrong. Changing an investment strategy that is designed with the long term in mind due to short-term volatility often leads to missed opportunities and/or even losses.

The chart above shows the history of the South African stock market, represented by the FTSE/JSE All Share Index when the market experienced a crash and the recovery in market performance over subsequent years.

In all the cases, except two, the 1-year return after the crash exceeded the losses during the crash. Investors who sold at the beginning of the crash would have experienced significant losses. These losses could have been avoided had the investments remained unchanged beyond the duration of the crash. The markets can be scary at times, but long-term investors should not panic.

The investment gains experienced over the long term outweigh the losses experienced in the short term. Historical evidence reminds us that the biggest price swings are rare occurrences that should not exaggerate the risk and uncertainty pinned on the anticipated long-term value of an investment. Remember, investment goals are set with the future in mind. Therefore, sticking to your long-term investment plan and doing nothing can sometimes be the best course of action.

Before you make any changes to your savings and investments, make sure that you have all the relevant information, understand your options and have consulted with an investment expert if required.

Aneesa Khan

Head: Finance & ICT