Don’t Allow Emotion or Sentiment to Derail your Investment Strategy
The market is predictable in its unpredictability, and it is certain to go through negative periods. However, anticipating exactly when these negative periods will occur is nearly impossible. Attempting to time when to be in the market (invested) and when to be out of the market (disinvested) has ruined many a financial future. Over the past 15 years (180 months) the JSE All Share Index had 70 negative months and the S&P 500 had 59 negative months. It is worth noting that many of the extreme negative months were immediately followed by positive months. Unfortunately, many clients panic and disinvest in an extreme negative month and miss out on the fast recovery. Here are the numbers and facts to support the statement “stay invested!”:
The local market example – An investor who invested R1m in the JSE All Share Index on 1 February 2007 (the start of the Financial Crisis) would have had R4.6m at the end of January 2022 if they rode out the hills and valleys and stayed invested. However, if the same investor made emotional decisions and missed out on 10 of the best performing months (out of the 180) their money would have only grown to R1.7m over the same period.
The USA market example – An investor who invested $1m in the S&P 500 on 1 February 2007 would have $4.3m at the end of January 2022. However, if the same investor missed out on the 10 best performing months (out of the 180) their money would have grown to $1.8m over the same period.
We detest uncertainty. We feel pain when we lose money, greater than the joy we feel when we make money. We are emotional and often irrational beings. Regretfully emotion and prudent investment strategy are like oil and water. When panic and fear drive our investor behaviour and we disinvest in volatile periods, we lock in our losses by disinvesting from the market at the worst possible time. This severely harms our financial outcomes. Alternatively, when we establish long-term investment objectives and co-create an investment strategy with our advisor that has meaning to us, we are significantly more likely to remain true to our strategy through uncertainty and volatility. This optimises our financial outcomes. Don’t allow emotion, sentiment and fear to drive short-term decision making that can derail your investment strategy. Stay invested.
Sincerely
Quattro Investment Committee
Quattro Finance Group
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