Often in times of volatility, investors will move out of equity markets in search of safe havens such as cash and bonds. As history shows, these bear markets do not last as long as the bull markets. Often these sharp downswings will be followed by a V-Shape recovery. Moving from equity markets to these “safer” assets in downturns would in most cases be an emotional decision as investors fear losses.
Investors are believed to feel the pain of loss more than the pleasure of gain, hence the decision to jump ship in volatile markets. As research has shown time and again, simply staying put may be the best decision. I believe that in these times it is more important than ever to have a good relationship with your Wealth Manager that can help you commit to long-term goals and stick to the ultimate plan.
It is important to remember that growth assets such as equities need to form part of a long-term investment strategy. Hiding in cash doesn’t protect you from the effects of inflation and you will effectively lose value in the long-term. But also remember that conservative asset classes should still form part of a well-diversified investment portfolio.
The following graph serves as the basis of my reasoning.
Source: Paul Hutchinson – Ninety One
Ruvan J Grobler
*This does not serve as financial advice but rather as factual information and my opinion.