What can you do about a market event, correction or shock after the fact? The best course of action, is to view it as a learning opportunity, and take action to ensure your risk profile, investment strategy and asset allocation have all been determined correctly.
It’s important not to approach this in a knee-jerk manner. Rather, it requires you to do the legwork, re-evaluate your portfolio and its objectives soberly, and only make changes where they are clearly called for. It is also a good opportunity to consider changes to your portfolio to preserve capital by controlling downside risk.
Research has shown over and over that your own behaviour negatively impacts your returns over the long term.
Ask yourself how many of these investment transgressions you are guilty of:
- Reacting emotionally to market news – selling or buying without proper research or strategy
- Forecasting the market’s every move
- Getting greedy and trading for short-term gains based on gossip
- Starting with a structured portfolio, but soon ending up with a mess due to undisciplined buying
- Checking your portfolio value daily
- Hiding in cash when markets get turbulent
- Forecasting binary-event outcomes and structuring your portfolio accordingly
- Forgetting about the tax consequences of your decisions until it’s too late.
The wise investor remembers that long-term investment principles prevail:
- Equities (growth assets) outperform inflation over time, despite short-term volatility.
- Diversify, diversify, diversify
- Cash is not a suitable long-term investment
- No single asset manager has a monopoly on asset management skill
- Research pays exponentially.
Moreover, the wise investor understands that there are things they can control, like their own behaviour, and things they cannot control, like the ups and the downs of the market. If you find you have been guilty of any of the investment transgressions described above, the best defence is putting a strategy in place to remove the temptation from your investment equation and to ensure you focus on the element you can control: your behaviour.
A qualified investment adviser can help you to do so in a disciplined manner by developing a tailored strategy to help you take the emotion out of your investment decisions.
We know beyond a doubt that the investment market will have many ups and downs in the future. Use the current opportunity to understand the triggers that make you act impulsively and ultimately cause value-destroying behaviour, and ensure your portfolio is well diversified in line with your risk profile. By taking these steps today with the help of your adviser, you can ensure your portfolio is robust and better able to ride out the next big market event.
Jac de Wet is National Head of Sales, PSG Wealth