|
|
|
|
|
|
| ||||
What comes down must eventually... Hedge funds may have bought a little pea... Some fly and some fall in stock market's... UNIT TRUSTS:Norwich Wealth Specialist Fu... Reader wants explanation for shoddy serv... The real cost of an average home keeps ... A more stable guide to true share value... Too soon to panic despite the losse... Dial-in savings by going direc... |
What comes down must eventually go up again
There is still a bumpy ride ahead for all the world's stock markets, writes LEIGH ROBERTS
In the mass of diverging opinions on why it all happened and what comes next, two points are universally agreed on. First, investor sentiment around the world is still nervous and there is much uncertainty over future market direction. Second, the world's markets will be more volatile than usual for a while. This week, despite the wild gyrations in the local market, fund managers stayed put. Here are 10 reasons why you, too, should be holding firm: 1. Market Timing Smaller investors so often fall into the trap of market timing; that is, bailing out at the market bottom and buying back in when prices are nearing their peak. By selling out now you are at risk of falling into the trap. As a long term investor - and you certainly should be if you are in the stock market - forget about market timing. Not even the professionals get it right. As this week's events prove, predicting the market is nigh impossible. The global village and online information highway have made the world's markets vulnerable to whirlwind trends. 2. Long-term wealth Unless you believe Armageddon is just around the corner, history has shown that investing in the stock market will bring far greater returns than other assets. In the long run, you have a better chance of building wealth through carefully chosen share investments and unit trusts. 3. Bulls and bears A lesson to be learnt from this week's turmoil is that markets go up and they fall down - that's just the way they are. Fortunately for investors, it is not an even-time split - markets tend to go up for most of the time. And happily, the share price rise when the market goes up far exceeds the price fall when the market goes down. Global market statistics over the past 40 years show that the average bull market lasted for 45 months, while the average bear market lasted only one year. The research by Templeton Asset Management also shows that the average price rise during a bull market was 103%, while the average fall during a bear market was a meagre 26% (figures stated after adjusting for inflation). Investing for the long term means sitting through the highs and the lows. 4. JSE fundamentals Fund managers stayed in the market this week as they believe that the market and the economic fundamentals are strong. Good corporate profit growth is expected, interest rates are thought to be on a downward trend, and prospects for lower inflation are encouraging. 5. Stock picking Some local companies will be hurt by the slower economic growth in the southeast Asian region, hence this week's markdown in De Beers and commodity shares. Choosing under-valued shares with good growth prospects can reap rich rewards for astute investors and fund managers. When the dust settles, foreign investors will also be hunting for the rich pickings. 6. Wall Street The world's largest stock market clearly had a wake-up call in this week's market correction. However, the US economic fundamentals are sound enough for good future corporate earnings growth, which can buoy growing stock market prices. A steady Wall Street in the months ahead will exert a calming influence on other markets. A New York equity strategist said their market on Friday afternoon was cautiously optimistic, "but the days of complacency are over", meaning the double-digit growth figures of the past will be whittled down to single figures. The US markets could remain unsettled for the next few weeks. 7. Risk One of the prime risks of investing in shares is the volatility, or wild gyrations in market prices such as were suffered this week. High volatility is the reason equity investments are touted as long-term holds. But this volatility risk is reduced to an acceptable level with a longer time horizon. Another risk of equity investment is liability risk. If you know you have to sell your shares to finance an expense within a three-year horizon, you shouldn't invest in shares (money market funds are a safer bet). 8. Asset allocation Financial advisers espouse the merits of asset allocation. Broadly, this means dividing your wealth among different asset classes - shares, bonds, property and cash - in the proportion that suits your age, wealth and risk tolerance level. The younger you are, the greater the portion of your assets should be in equities, because as a long-term hold you can afford the risk and you will earn better returns. Older investors, and especially those within five years of retirement age, need to be wary of having too high an exposure to the stock market. 9. Costs Jumping in and out of shares and unit trust funds is expensive. There are transaction costs to pay when you buy back in: about six percent on unit trusts; one percent on switching fees in linked products; and up to 1.5% on shares. Frequent dealing also runs a tax risk: the taxman may classify you as a dealer and tax you on your, otherwise capital, gains. 10. It's November! The best news for the market is that we are now out of October. The 10th month of the year holds bad memories for stock markets - in 1929, 1987 and now 1997.
|