By: Hannah Myburgh
A new year brings resolutions to save and invest, with many unit trusts and investment options available. However, it's easy to get overwhelmed by details and overlook fundamental investment principles. Whether you're already invested for the long term or starting your journey, it's important to regularly remind yourself of these time-tested principles.
Know your investment objectives
Your investment goals are essential to shaping your portfolio, so it is crucial to have a clear understanding of them. Losing sight of these goals can make it harder to stay committed to your strategy during market fluctuations or times of pressure. Remember, investment objectives are not fixed—they may evolve with changing circumstances. Therefore, it is important to revisit and adjust your portfolio accordingly. To ensure flexibility, document your investment goals, enabling easy reassessment and realignment as needed. Personal circumstances can change rapidly, so staying proactive is key.
Seek independent advice
Seek advice from an independent financial advisor who is not tied to any product provider or insurer and is not financially incentivised to sell a product. Independent, fee-based advisors offer unbiased, commission-free investment guidance. They typically charge a transparent, pre-quoted fee for their services, allowing you to implement their recommendations with any provider. Take the time to research, ask for recommendations, and conduct thorough due diligence before selecting the right advisor to ensure a strong, trustworthy partnership.
Be aware of your biases
As humans, we are often less rational than we think, especially when it comes to investing. While clarity on investment goals and adherence to strategy is crucial, it’s equally important to recognise the impact of emotional and cognitive biases on decision-making. Whether it’s overconfidence, endowment bias, herd mentality, or ignoring conflicting information, being aware of how emotions and subjective views influence our choices is key to making more objective, informed investment decisions.
Understand the nature of investment markets
Financial markets are inherently volatile and influenced by social, political, and economic events. As a long-term investor, it’s crucial to tolerate these fluctuations, especially with equity investments, which tend to be more volatile than cash or bonds. Long-term investors should withstand short-term portfolio changes without panic. While past stock performance doesn’t guarantee future returns, markets have consistently shown resilience, even during periods of significant political and economic instability.
Don’t track your investments
Frequent monitoring of your investments increases the likelihood of reacting impulsively due to greed, fear, or other biases that often derail investors. For long-term investments, it’s advisable to review your portfolio less often to prevent unnecessary panic and anxiety. Human nature tends to make us more responsive to bad news than to good, so daily tracking can be counterproductive. Instead, set regular intervals for portfolio reviews based on your strategy, investment horizon, and objectives, and stick to this schedule to maintain a disciplined approach.
Don’t try to time the markets
Your documented investment goals should remind you that you are a long-term investor, not a speculator. Unlike speculators, who seek quick, high returns, your aim is consistent wealth growth over time through a well-thought-out strategy. Resist the urge to react to short-term market fluctuations and stay committed to your plan for sustained success.
Know your propensity for risk
The risk exposure of your investments should balance the returns needed to meet your goals, your liquidity needs in retirement, and your personal risk tolerance. Your advisor should take time to understand how you react to market volatility and help structure your portfolio in a way that aligns with your risk comfort, ensuring you remain committed to your strategy over the long term.
* Myburgh CFP® is a financial planner at Crue Invest (Pty) Ltd.
PERSONAL FINANCE