While the ebbs and flows of markets are always going to keep investors on their toes, it appears South African investors may be too quick to chop and change their portfolios during times of heightened economic uncertainty and market volatility.
And as growing geopolitical tensions show that volatility isn’t going anywhere quickly, knee-jerk reactions are likely to be detrimental for investors’ portfolios and ultimately lead to disappointing investment returns.
The Schroders Global Investor Study 2019, after surveying more than 25000 investors across 32 countries, revealed that the majority made immediate changes to the risk profile of their investments during the volatile final three months of 2018.
The end of 2018 was a particularly volatile time, for not only the South African economy but also the broader global economy, with the MSCI World Index of global equities falling sharply amid rising geopolitical risk and growing concerns for the global economy. In response to this market volatility, 74 percent of South African investors made changes to their portfolios’ risk profiles.
Interestingly, the nature of the portfolio changes made by South African respondents in response to the period of heightened instability were quite fragmented. The study shows that South African investors are equally likely to decrease (41 percent) or increase (39 percent), the overall risk profile of their investments in response to market volatility. Furthermore, 27 percent moved some or a significant proportion of their portfolio into cash. Ultimately, this implies that people became fearful and made hasty investments decisions - something that it’s never advisable to do.