Guiding consumers since 2009

Hold on tight and wait for the market upswing

By Staff Writer

Question: There is lots of coverage in the press at the moment about possible recession and high inflation. Should I look to move my investments into cash to avoid losing money? With high interest rates cash looks very attractive.

Answer: Global stock markets are indeed very volatile at the moment and we are seeing big moves up and down daily. While I appreciate that this is of concern to you I would caution against making any decisions based on short- term factors. I obviously don’t have the full details of your financial affairs so my comments are quite general.

Though cash returns may be relatively attractive at the moment, I would strongly advise against making a switch to cash within your investment portfolio unless your circumstances are such that your time horizon is very short.

The equity market is volatile by nature and it’s not uncommon to see large moves up and down. Markets move in cycles. A down trend is part of the cycle and there will be an up trend to come. Over the long term, history has shown that the returns from equity are much higher than those on cash and that in order for our investments to grow and beat inflation we need equity exposure.

Unfortunately , what typically happens when investors try to move in and out of the market is that they sell when the market is at its lowest and miss out on the growth. They then buy back into the market just as the next down cycle is about to begin.

Over the past 10 years the return on the SA equity market has exceeded 19% a year. It has achieved this healthy return despite the fact that there were five periods when the markets fell by more than 20% from high to low.

The return on cash over the same period has been about 11% a year. When this difference in return is compounded over 10 years, it starts to become clear why we need to have some exposure to equity markets. It is important to have a balanced portfolio and in the same way as it is not appropriate to have no equity, it is also not appropriate to have exposure to equity only.

My advice to you would be to determine together with your financial adviser what the correct allocation is for your particular needs over the long term. Then you should stick to this strategy through all market conditions and you will do better than trying to switch in and out of cash, hoping to make the correct timing decisions.

Recent Articles

Featured What’s the deal with underwriting?

When you apply for a long-term insurance policy, a financial adviser will ask some personal questions about your lifestyle, family history, health, and even ask you to take some medical tests. This process is called underwriting, but is it really necessary?

 

How are you taxed on your retrenchment package?

Unemployment is one of the biggest problems in South Africa. The emergence of the Covid-19 pandemic has exacerbated the situation with a lot of companies retrenching their employees.  When retrenched, you’ll receive a retrenchment package, but do you know how much tax you’re liable for?

Car repossessed – don’t be taken for a ride

When the country is facing an economic downturn, chances are your finances will feel the pinch. This can lead you to make bad financial decisions such as skipping your vehicle payments. But every decision has consequences and if you don’t pay your instalment, the bank will repossess your car. But what can you do when this happens?

 

Why you should consider gap cover

Your medical aid should protect you from incurring large medical bills when you’re sick. But what if your plan doesn’t cover the full cost of your medical expenses? We got in touch with insurance experts to find out whether gap cover is worth having.

Deals

Office furniture at discounted prices at BDK

Price: Available on request
When: Daily
Where: Johannesburg

Da Vincis Happy Hour Special

Price: Available on request
When: Daily
Where: Cape Town

Use your Absa card and get 30% cashback at Dis-chem

Price: Available on request
When: Daily
Where: Nationwide


Latest Guide

Guide to debt rehabilitation solutions