We all want a low-risk portfolio that gives us great returns, but we cannot expect that.
Rather than going into the details of the various investment options available and which ones we think will work (or not), we want to take a step back in an attempt to see the forest for the trees. The current situation in the property sector is just one example that can help us do that.
Many will be quite surprised to hear that the last 12 months have been nothing short of record-breaking for the asset class. This feels completely wrong. How is it possible with business closing down, people losing their jobs and “everyone” working from home lately? Well, the markets (all markets, not only property markets) generally have a very different idea of what is logical than what we may assume when we are caught up in the thick of things.
There is always more to it than meets the eye.
Investing is often most successful when you are able to embrace the counter-intuitive. Warren Buffet’s investment tip to “be fearful when others are greedy, and greedy when others are fearful” has become a cliche for the same reason that any saying is a cliche – because it is true. If you had the stomach to add to your investment towards the end of March 2020, your existing funds would not only have recovered the losses suffered, but your overall investment would have had the best year in the last several years for SA investors. Instead, we saw massive redemption’s from “risky” assets (i.e. equity funds) in favour of reinvestment into “safe” investments like cash. Not only did investors deny themselves the ability to recover and grow (substantially) over the next year, but they also invested in cash during a time when SA interest rates dropped to historical lows.
The best thing that investors can do for themselves is not to pick the single best performing fund or save 2% in tax with an excellent (often very complex) investment structure. While picking the right funds and managing your tax effectively is important, getting too caught up in the detail will likely lead to severe anxiety levels. Anxiety is guaranteed to lead to rash decisions at the worst possible times.
Instead, the best thing that investors can do for themselves is to be invested. Simple as that. If you forget about the illusion that you can be invested in “the best” fund and stop worrying about being invested in “the worst” fund (because last year’s best performer is next year’s worst more often than you may imagine), you can settle on a “good” portfolio and stay invested in it…for as long as possible.
Stop obsessing about the small percentage that the other fund beat your investment by last month and ask yourself whether your investment is doing what you expect of it. If you have a lot of equity in your portfolio, you cannot be too anxious when it falls in line with general markets. If you didn’t expect that to happen, you are not invested in the right portfolio.
Be careful not to confuse what you want from your portfolio with what you expect from it. We all want a low-risk portfolio that gives us great returns, but we cannot expect that. More often than not, you can expect short term volatility from a portfolio that will give you what you want over the long term. In order to stay invested, you need to make peace with this fact and find that balance between the two.
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Source: Moneyweb, 2021
