CAPE TOWN - Investors tend to feel happiest when the market is buoyant. When prices fall, so do their spirits … except for those index investors who know a regular investment made when the JSE is at a low point will get them a bigger slice of the market.
Newspaper headlines tell us that the JSE is headed for its worst monthly performance in a decade and there are fears that the downside momentum will continue. We are told that for the first time in a long time, almost every major asset class has fallen into negative territory for the year.
For a long-term retirement saver this is not all bad news since investing in a depressed market is much like buying shares on a sale.
It is worth noting that the month of October does tend to unnerve investors. In fact, since 1950 it has been the most volatile month for the S&P500.
It has also seen the most famous of market crashes: Black Tuesday (1929), Black Friday (1987) and a big part of the Global Financial Crises (2008)
Locally, the market is under pressure from all sides: a technical recession, a slew of negative earnings surprises, bearish sentiment towards emerging markets in general and, more recently, weakness in sympathy with the US market sell-off.
So prices are low, which means it is a good time to buy and a terrible time to stall your long-term savings programme, worse even to sell down your investments.
Periods of low returns, like we are seeing now, always cause concern. But the biggest risk when markets do sell off is that people panic.
They either don’t invest at all, or they move their savings to a less risky product. This is how value is destroyed for long-term investors, such as retirement savers.
At times like this it is more important than ever to remember the golden rule of investing: It’s not about timing the market, but simply time in the market.
If you are saving in a high equity portfolio, your expectation should be that there will be periods where markets are strong and period where markets are weak.
There is a certain expectation of long-term returns, but those returns will be lumpy.
When you are in a period of low returns, which is where we are now, you can look forward to a period of higher returns.
Unless you have an immediate need for your savings it is better to stay invested in the market.
Selling now will lock in your losses, meaning you won’t have a chance to make your money back.
Markets tend to mean revert, and that can happen quickly.
This is not a good time to freeze your savings programme. Any regular sum you are investing into your retirement policy will buy you more units in a high equity fund when the price is low. Think of it as a discount of sorts.
If you are a long-term investor (ie if you have five years or more remaining before you need to access your savings) you have time to ride out short-term volatility.
Yes, it can be an emotional rollercoaster, but just remember investors don’t get growth in a straight line. Periods of below average returns have always been followed by periods of above average returns.
What matters is the size of your retirement pot when you retire. Your regular (monthly) savings buy more investment units when prices are low. All else equal, you are better off buying (saving) when prices are low and selling when prices are high. As a long-term buyer of investment units we should smile and welcome low prices.
Steven Nathan is the chief executive and founder of 10X Investments
The views expressed here are not necessarily those of Independent Media.
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