South Africa’s recent downgrades by rating agencies may put off some people from continuing to invest. This should not be the case, the market goes through periods of volatility and that’s never reason enough not to stay invested.
Aneesa Razack, CEO of FNB Share Investing, says “South African markets have gone through periods of volatility previously, most notably during the global financial meltdown of 2008 and the end “Dot Com Bubble” when markets dropped significantly. While the latest downgrades would be a cause for concern for local investors, this should not deter anyone from continuing to invest. Over the long term the market tends to slowly return to a growth trajectory by self-correcting. The worst any investor can do is to decide to pull out completely; nothing could be more regressive.”
“While market volatility poses some risks, there are also investing opportunities that may be beneficial over the long term” she adds. To illustrate, from April 2009 to April 2017, the JSE All Share has grown by more than 160%, so if investors had pulled out their investments, they would have lost out on significant returns from the market.
When the market suffers a downturn, some shares may be cheaper to buy, this not only means you can bolster your portfolio, it’s also an opportunity for better growth prospects when the market recovers. Buying when the market is priced less provides an opportunity to buy into different sectors of the economy which, in essence, is a form of diversification and will allow you to spread your risk evenly.
If you have never invested before this could be the ideal time to get started and step into the market. It may seem like to worst time to start investing but it’s not, as long as you take a long term view. Remember that it’s better to invest money that you won’t need for at least three to five years to ensure you stay invested over the long-term; this is the only way value can be derived from investing. “Imagine someone who may have decided to invest some money back in 2008 when the market suffered the worst downturn, over the years they probably reaped some rewards as the market recovered,” says Razack.
It’s going to be a long ride
Whether you are a novice or experienced investor, remember that when the market turns volatile your will see your portfolio fluctuate. What is important is to avoid impulse decisions, as they can be costly. By selling when you see losses you are essentially selling cheap to the benefit of someone else. Rather hold on to your investments through the rough times.
“Investing goes hand in hand with risk, but inherent in the risk is also opportunity for wealth creation. The process of creating a sizeable investment portfolio takes time and requires some patience,” adds Razack.