Remembering long-term investment plans
Research has shown that investors, being humans, are driven primarily by the emotions of greed and fear and the regular updates on COVID-19 have certainly driven a feeling of fear.
A fear-based reaction to market volatility may mean that an investor could lose out on the subsequent market gains. The chart below illustrates how the significant equity market lows of 2008 (the Global Financial Crisis) were followed by the highs of 2009, with an annual performance of the index delivering a stellar 32%. It is also critical to note that significant volatility in markets that year, meant the low point reached negative 15%.
Chart: Annual returns of the JSE All Share Index with intra year drawdowns
While we cannot be sure of how long this volatility will last and what the ultimate outcome will be, it is useful to remember that volatility is normal, and discipline is required to ensure that well-considered financial plans deliver on long-term investment objectives.
What we do know is that markets will eventually recover as they did after the Global Financial Crisis 12 years ago, and the various crises before that. Just as investors have participated in the downturn, they should also participate in a subsequent recovery. On a short-term basis, portfolio managers are watching daily changes and will consider any portfolio adjustments to minimise sustainable losses.
During these times of market turbulence, it is important for investors to remain calm and hold on to long-term financial plans before making any emotionally-led or fear-based decisions. Keeping long-term investment objectives in mind and following the advice from investment professionals while the volatility continues, remains critical.
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