BY: FAZAAD BACCHUS
What a crazy world we live in when it comes to our investments. No one likes to lose money, and these last three months have given some people all the reason to give up. Some days are up and some days are down. On good days we become hopeful that the trend will continue and on bad days we hope things will turn around. As an advisor for the last twenty-seven years, I have seen this trend where markets are concerned almost on a daily basis. I say to my clients that the stock market is a living, breathing thing that we have no control over. And as long as we make the decision to get into the markets, be it in mutual funds or direct stocks we are subject to the roller coaster that is the stock market.
Every investor needs to remember though that as the market takes air in and lets out air, over time it is proven that if you stay the course you will be rewarded overall. We cannot time the market, we do not know what and when something will happen that changes the market in an instant. For example, two weeks ago in the news, it was reported that a van ploughed through civilians on the Ramblas in Barcelona, Spain. And while this makes news from a terrorist point of view, what did it do to markets? If you were invested in international equity, you would have seen a fall of approximately 3% of your investments overnight. Markets react to these types of events where no one can predict and sometimes investors get scared and believe that it is best to pull out.
No one knows what the markets will do, however financial analysts do have an outlook based on trends, demands, political landscape etc and they will calculate the probability of market swings, up or down. In turn, they will discuss with the portfolio managers who are responsible for investing your money. The portfolio manager, in turn, discusses with the wholesaler/advisor what they forecast, who in turn discuss with the clients/investors. This is a much better approach to investing as you are now working with a team of qualified professionals responsible for your money.
Good advisors know that markets will go up and come down, so these advisors try to find funds where when markets fall, the funds fall less and when the market rises the funds rise more. In our language, it is called up and down capture. Of course, investments are not made for the short run but for at least three years. Betting on a shorter time span may prove to be a little too volatile and you may not see the return you need.
What is my advice in this current time of uncertainty? Find a good financial advisor, one who is knowledgeable in investments; discuss your goals, your fears, your risk tolerance and your time horizon. Have your advisor look into funds that have less volatility and funds that perform better than the market in both good and bad times. It’s a simple strategy and it does not mean that the market will not show you losses at times, but it will allow you to sleep better at night. If you stay with this strategy you are more than likely to have better returns on your investments.