The investment world can seem like a scary place. The average investor is faced with a constant stream of messages about what they should or shouldn’t be doing.
The investment world can seem like a scary place. The average investor is faced with a constant stream of messages about what they should or shouldn’t be doing.
However, the vast majority of this is short-term ‘market noise’, which is not at all useful in making sound long-term decisions. The trouble is that it can be so overwhelming that the fear of doing something wrong causes many investors to over-react.
“If you believe in evolution, our ancestors were probably not the people who ran towards danger – they were the ones who ran away to survive for another day,” says Iain Anderson, portfolio manager at Sygnia. “I think it’s the same in investing. Its in our DNA to run away from bad news and turmoil, but in investing that’s not the right decision all the time. It typically leads to selling at the bottom and buying at the top.”
As difficult as it might be, investors need to be strong-willed. And that starts with resisting the temptation to look at what their portfolios are doing every day.
“If you have a well laid out plan and a well-diversified portfolio, you don’t need to check on it all that often,” Anderson says. “You only need to reassess it when things change fundamentally. If you look at it too regularly you get caught up in the noise and that’s when you make bad decisions.”
What’s also critical is that this plan sets goals over the longer term, and these are what should be reviewed rather than daily movements.
“On any given day, even with a diversified portfolio you probably have a 50% chance that your portfolio is going to be down,” Anderson argues. “That means that if you look at your investments every day you are going to feel bad half of the time, which means you are potentially making more bad decisions.”
Ask the right questions
At the same time, however, that doesn’t mean that you should never look at your investments. You should stay informed. Siyabulela Nomoyi, investment analyst at Sygnia, says that as a general rule you should check on your investments every three to six months.
“This does depend on what type of portfolio you have,” he says. “If you have a personal stock portfolio you will need to check it more frequently, but if you have a balanced portfolio containing different asset classes, then I would say that every six months is about right.”
How often you assess your investments also depends on your life stage.
“A younger investor can just invest and not check that portfolio for as much as a year,” says Nomoyi. “But someone who is close to retirement and can’t afford as much risk needs to check on their strategy more frequently.”
When looking at your investments, Nomoyi says that it’s vital to check the performance of your portfolio against what you expected when you initially made the investment.
“If the returns have fallen short or if it’s more volatile than you expected, then it’s time to revise that investment or speak to your manager,” he says. “You need to ask where these returns are coming from. Even if the performance has been above expectations, I would treat that the same. You should get answers as to why you are seeing this performance so that you can understand your portfolio better.”
Another important aspect of checking on your investments is to ensure that your asset allocation is still appropriate. Over time, as some asset classes out-perform and others under-perform, this will alter the balance of the portfolio. When this moves too far out of line, you need to consider getting it back to where it should be so that it remains appropriate to your risk profile.
“A good way of re-balancing is through using your contributions,” says Nomoyi. “If you see that you are drifting away from your target allocations, put more into those assets that have under-performed and less into those that have done well. This avoids concentration and also puts you in a better position from a risk perspective.”
Retirement goals
Another vital consideration for anyone who is saving for their retirement is to be aware of whether or not they are in fact on track to reach their goals. They need to assess whether they will have saved up enough money to fund their lifestyle once they stop working.
“The only way to do that is with the help of a financial adviser or a financial planning tool that can look at your current investments, how much can save going forward, and whether this will get you to your goals,” says Charlene Swartz, the head of retail administration at Sygnia. “If that amount is not going to be enough, you can then look at how much more you might need to contribute every month.”
This is also not something that should only concern investors who are nearing retirement. The sooner you do this, the better the eventual outcome will be.
“You should really do this from the outset,” says Swartz. “Even if you’re in your 20s, you can’t just put R500 aside every month and never re-asses it.”
ADDITIONAL NOTES
SYGNIA GROUP
The Sygnia Group comprises six operating companies; Sygnia Life, a life assurance company, Sygnia Asset Management, a licensed asset management company, Sygnia Collective Investments, a unit trust company, Sygnia Financial Services, a LISP, Sygnia Securities, an execution-only stockbroker and Sygnia Systems, a financial software development company.