What’s keeping SA investors up at night?

*This content is brought to you by Brenthurst Wealth

By Sonia du Plessis & Leslie Greyling*

It’s difficult for humans to overcome our ingrained fight-or-flight instinct, especially when making investment decisions. When markets get bumpy, it’s only natural to want to avoid losses by moving your money out of harms’ way.

While your instinct might be right, the best reaction to market volatility isn’t always to flee to safer destinations like money market funds.

Two of Brenthurst Wealth’s advisors share their clients’ most common fears and how to overcome them so they can enjoy the long-term benefits.

Sonia du Plessis, CFP®, Head of Brenthurst Wealth Stellenbosch, says:

Sonia du Plessis

Clients’ biggest worry: 

Their number one worry is that their funds could have done better in a money market account than what equity markets have delivered. 

Why this is unfounded:

The returns of money markets vs equity markets perfectly illustrate the old saying that it’s impossible to time the market. Had you been invested in US tech stocks in December 2021, the value of these shares fell almost 25% in the following three months. 

So, investments in the money market rather than the tech giants would have been safer. But who could predict this or even the strong rebound of those same stocks in 2023? 

From the beginning of the year to around October, the share prices of the largest seven tech stocks have climbed 55%. This is nearly five times the return of the broader S&P 500. Meanwhile, your average money market fund is unlikely to be offering you much more than 5% currently, which pales in comparison.

This illustrates the value of taking an informed, measured approach to savings. What might seem like a very good move could cost you in the long run.

How to overcome these fears: 

To combat fear ruling your decisions, here is what I suggest:

  1. Look at your investments less frequently. It’s easy to become caught up in emotions when tolerating losses, but evidence shows that checking your investments less often reduces your losses.
  2. Get an outside perspective. Using a financial advisor is an investment in your future just as much as your monthly contributions are. And this is a truth understood by all investors who are serious about building a retirement nest egg.

Leslie Greyling, a financial advisor at Brenthurst Fourways, says:

Leslie Greyling

Clients’ biggest worry: 

Global market volatility has become a significant concern for investors over recent years. Continued geopolitical factors have contributed to ongoing market fluctuations, and this uncertainty affects investment decisions.

Clients feel they need to reduce their exposure to listed stocks when this might not be in their best interest, especially considering their investment time horizon.  

Why this is unfounded:

Experienced investors know that investments are never risk-free and that their experiences and biases will influence their investment decisions.

Pessimistic or nervous investors are likely to hold more conservative portfolios and maybe even avoid the stock market completely. Their decisions are based on short-term outcomes and are usually risk-averse.

More optimistic investors have a longer-term outlook and focus on the market potential and future returns. They’re willing to take more risk in their asset allocation.

How to overcome these fears: 

Once you accept that markets and investments will always be volatile, it’s easier to see the value of a well-diversified portfolio. History has shown that these tend to deliver above-average returns if you stay disciplined and remain invested during uncertain times.

You are also less likely to worry about short-term volatility if you understand what influences global markets and how that might impact your portfolio. This means taking an active interest in global affairs and markets so that you stay informed. 

Partnering with a trusted financial advisor is another way you can avoid knee-jerk reactions and doing damage to your life savings. Having an informed sounding board to discuss your fears and plans for the future can help you design a path that leads to a comfortable retirement.

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Brenthurst Wealth Management