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Investment Strategy
Saturday, November 1, 2008
Stay for the long term

The US Sub-prime crisis has caused global market turbulence that makes even seasoned investors start to faint. And it is moments like these when one is more often than not driven by emotion, rather than fact.
“However, investors should steel themselves and ride out the storm in order to meet their long-term goals, rather than making impulsive investment decisions,” says Mike Harper, MD of Retail Affluent at Old Mutual.
“We’ve seen investors moving their capital from growth funds that offer greater returns when markets are stable, to more conservative investments. But clients that do this are likely to miss out o¬n higher returns when the market recovers.”
Harper suggests investors should ask themselves the following questions:
1 .Are you invested in the right funds? If you choose a fund based o¬n its ability to meet your long-term goals, trying to time the ups and downs in the market can be nerve wracking and is often disastrous. Use time to your advantage – stay in the market and ride out the storm.
2. Why stay invested? Unless you need cash right away, it is better to stay invested even during market downturns. Cash does not significantly out-perform inflation in the end.
3. Is your portfolio balanced? It is important to spread your assets so that you are cushioned from market volatility. Portfolio diversification is crucial to limit the market loss during bear markets. After all – there will always be times when o¬ne type of investment outperforms another.
4. Lump sum or debit order? Market volatility is of great concern for lump sum investors – more so than for those that invest o¬n a continuous basis, month after month. Investing through the dips is a powerful way to build wealth in the end. Lump sum investors should consider phasing into the market to reduce risks.

“When times are tough, it is important to consult with your financial adviser so that you acquire all the facts you need before making any moves. This is especially so when you are subject to financial pressures,” recommends Harper.
It is also prudent to invest with partners experienced in managing different market conditions. “Choose a sound company with solid foundations. Old Mutual prides itself o¬n being o¬ne of the most highly capitalised savings and investment companies in South Africa, with 3.5 times more capital than is required by the regulators. But why is that important to the investor?” asks Harper. “Because people want to, and need to, be in safe hands in the most turbulent of times.
“At Old Mutual we believe that sound advice is essential to financial well-being. We encourage South Africans to seek the advice of advisers who can help them put together financial plans that meet their long-term goals – including riding out the storm during market downturns. An adviser can help you structure an action plan to create a diversified financial portfolio that weathers the storm during bear markets,” he concludes.
 

Copyright © Insurance Times and Investments® Vol:21.10 1st November, 2008
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