Ive often sat in traffic on Johannesburg’s busy streets, and wondered why so many drivers constantly lane hop… These drivers will cut and push their way into different lanes as that lane speeds up, but the end result is they normally get to their destination in the same amount of time. I always wondered if it was worth all the effort to cut a few seconds off their travel time? I would guess that in some instances, these drivers do cut some time off their ETA, but how often?
This then got me thinking about investing and how some investors try to hop in and out of investments during volatile times, with the aim of timing it perfectly. Are these investors any better than the guy pushing his way through traffic? in the long run, do they achieve a higher return? The short answer is no. In some cases, I’m sure investors could get the call right, and avoid some drop in capital value, but then you have the problem of timing your entry back into the markets. What you normally find is they will panic when the markets drop, and switch everything into cash, just to find that markets have actually bounced back by the time the switch happens. Or they will exit too soon, missing some of the upside, and then wait too long before getting back into the markets.
As it stands now, “cash” gives around 6% yields per annum. It has very little volatility, but little growth. With the Equity market, you do increase your risk to volatility, but in good times, you could see higher yields than cash in less than 1 week. This means if you didn’t time the market right, and missed that run in Equity, you could potentially miss a full year’s worth of cash growth.
So what is the best strategy for investing? Its quiet simple, speak to your Investment Manager, select a risk profile that suits your needs, or investment horizon, and stick to it. Don’t panic when you see markets reacting to situations that are out of your control. You need to ignore the noise, and just let your Investment Manager do what they do best! As per the Wall Street adage – “Time in the markets is better than timing the markets”.