Invest or hibernate? The investment dilemma

Nothing can replace a diversified portfolio with a reasonable time period of stable exposure, says Paul Counihan. SUPPLIED.

Nothing can replace a diversified portfolio with a reasonable time period of stable exposure, says Paul Counihan. SUPPLIED.

Published Jun 12, 2024


Paul Counihan

During times of uncertainty, investors tend to hold on to their money. With political coalitions in the making, which could swing South Africa’s economic pendulum either way, the market tells a clear story of hesitation. Many South Africans are left wondering: Is this the right time to invest?

Uncertainty in high gear

It is a peculiar time for investors in South Africa, with a mixed bag of worries. On the one hand, you have high inflation pushing fuel and food prices upwards, not to mention the roller-coaster ride of the rand. Then, just to top it off, coalition discussions take centre stage, leaving investors hanging and waiting to see what the composition and policies of a new Government of National Unity will include. Naturally, questions such as “How will the different coalition scenarios impact my investments?” and “Is it a good time to invest for an extended period?” are top of mind for investors.

Big picture thinking

This is not a simple yes or no situation. Certainly, the perceived less favourable coalition agreements will bring about massive asset price fluctuations in SA. However, with such strong and globally diversified companies operating in SA, the quality will outweigh unfavourable political noise over the medium to long-term.

When looking at the “big picture”, there are smart investment opportunities in SA because the private sector is actively at work to drive our economy forward, regardless of the political noise. It can be credited for making huge positive moves in the logistics and energy sectors. It is for this reason and the unwavering persistence of our private sector that looking beyond the listed space and taking up some quality unlisted exposure can add a solid return.

“Time in the market” versus “Timing the market”

This is a fundamental lesson learnt over and over again by investors worldwide. Nothing can replace a diversified portfolio that has a reasonable time of stable exposure. The strategy trumps all other strategic and tactical asset allocation methods. There are specific sectors of the economy that present good investment opportunities. Particularly, sectors that have strong free cash flow with moderated gearing, strong people running the businesses, existing global revenue streams and businesses that have competitive advantages. Whether this is a tech company or a fish and chips shop, fundamentals will always drive asset returns.

Is there a place for fixed investments in a volatile market when investors hesitate to invest for extended periods? Fixed investments are more relevant than ever, and if this comes with term-based commitments on the investments, it’s a valuable and viable trade-off. Coupled with a well-diversified asset allocated strategy, investors should be able to weather whatever the markets may throw at them.

Stay the course

I want to remind investors of the solid investment principles that stood the test of time. Portfolio diversification is a must, the paring of asset classes and their liabilities must strike a balance to meet and manage defined liquidity events in line with the level of risk. Equally important, time in the market is key for long equity strategies. Don’t forget: it’s a complex world and working with a trusted and competent financial adviser can make all the difference.

Paul Counihan is the Fedgroup’s chief wealth officer and seasoned investment expert.