The political environment in SA is quite volatile with a lack of policy certainty and a lot of populist remarks being made by politicians prior to the 2019 national election. Realistically we should expect this to intensify in the struggle for votes and political power. Will Cyril be able to steady the ship? The truth is that we simply don’t know and nobody can predict the future with certainty.
History shows that the markets do have cycles and that various negative events (including political) usually do surprise us. The graph below lists various events over a 45-year period that have caused market turbulence and investor anxiety.
It is natural for us to become anxious as uncertainty increases. We naturally respond to fear by wanting to “do something”. Reacting to fears about your investments by changing your strategy has shown to be the single biggest destroyer of value over time. Unfortunately, when it pertains to investments, activity alone does not necessarily result in achievement.
Experience has shown that investor behaviour ultimately has the biggest impact on their final financial outcomes. Investors that have a considered long-term plan and the discipline to stay committed to the plan have the highest probability of reaching their objectives. This is a very simple truth but is not always so easy to adhere to. Your plan needs to be an articulation of your personal needs and values.
The solution that has been selected for your plan has been purpose built and is managed to provide the expected return over a period of time. The portfolio will include risky assets (e.g. equities) that reward you for taking the risk, but only over a meaningful period of time. In the short-run (as with moment-in-time estimates) most portfolios will experience price volatility as markets go through a cycle – which is both normal and anticipated.
Investors that understand these simple truths and stay committed to their plan should not get distracted by the daily noise that fights for our attention. So, what about the likes of controversial politicians that make front page headlines? The good news is, they too shall come to pass.
The more inconvenient truth is that the power to derail one’s long-term retirement plans are more squarely under our own control.
Linda Stonier is the Chief Executive Officer and Head of Advice for Stone Wealth Management.