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Your guide to navigating the hellish sto... UNIT TRUSTS:Old Mutual Gold Fun... Make sure you have adequate life assuran... Medical aid funds start moving out ... Giving careful consideration to the cost... Pension funds slide with the stock marke... Keep a sharp eye on N shares for the oc... |
Your guide to navigating the hellish stock market
If the going is tough for the experts, what should small investors be doing? LUCIENNE FILD and TERRY BETTY report
For many investors, uncertainty about future market direction has reached the unbearable stage. And not much guidance is forthcoming from the experts, since there isn't a common view. Some say we're on the edge of a long-term bear market, others scale things down to a meagre correction in a long-term bull trend.
If you're already invested For most investors who have money in the stock market, this is a bad time to jump ship. Selling now will probably result in a loss - depending of course, on your shares or funds and when you bought into the market. As Bob Bartholomew, director of Brantam Financial Services, points out: "You haven't lost money until you actually sell. Up to this point, it's a paper loss only and if you see your investment through to recovery all you will have ultimately lost is a bit of investment time, not cash. Young investors should sit tight."
Les Lawson, managing director of Alexander Forbes Executive Financial Consultants, says investors should try not to get sucked into reading the market, which is hard normally and even harder to do now.
Andrew Bradley, director of financial consultancy Fincorp, says if your asset allocation is right then you should be able to weather the turbulence. "Investing in the stock market is like running a marathon. It's not a 100m sprint," he says. Asset allocation refers to the spread of your assets between equities, gilts, property and cash. Broadly, the younger you are the more of your assets should be invested in equities; the older you are, the more cash and gilts you should hold. Louis Fourie, director of Citadel Investment Services, advises that you stick to "value for money" investments, and see this bad patch through. "The stock market offers very good medium-term value, especially with the prospect of earlier interest rate cuts. "And remember, markets will always be volatile," says Fourie.
Armin Diem, general manager of Appleton Asset Managers, says: "Stay in the market if you don't need the money, but if you hold commodity shares you may want to consider selling as the current investment climate won't do much for them."
New investors in the market The market is now considerably cheaper than it has been for a while - the JSE all-share index has dropped by 30% since last August - and hence, there are a number of "bargain stocks" up for grabs. Before investing new money, though, seek the advice of a good stockbroker as the trick in this market lies in picking the right stocks. And be warned: the market hasn't bottomed yet and high volatility will continue for some time.
Stockbroker Izan de Bruin of J M Folscher's advice is to buy, but selectively. Take a look at SA Breweries and Sasol, he says. Stella Pengilly, head of unit trusts at RMB Fund Managers, says potential investors should be extremely cautious and should rather hang onto their cash for a while. "Hold off for a week or two, but keep reviewing the market situation." Pengilly says if you are a young investor itching to snap up cheap stocks, be sure the money you invest is money you can afford to play with.
Diem's advice to new investors is to invest a small portion of your money in the market, buying shares selectively, but to leave the rest in cash for the time being. Diem favours certain banking, insurance, information technology, and black empowerment shares. Lawson says this is a time to be cautious with your capital, but there's no reason not to put more of your income into the market provided you have the tolerance. He stresses phasing new money into the market over a couple of months, rather than investing it in a lump sum.
Investors in linked products Despite the heightened market volatility this week, the linked-product companies did not experience a flood of requests from jittery investors wanting to switch out of equity funds. Rudi Stumpf, head of Sanlam Personal Portfolios, advises you to stay put if you are already invested. "Avoid the trap of switching funds after you've already lost money," says Stumpf.
Jakes den Haan, managing director of Standard Bank Investment Administration Services, says ride out the market, rather than switch from fund to fund and bear extra costs - as well as the risk of further losses.
Nearly retired investors If you are fully invested in equities and heading for retirement, you're in a pretty risky situation and should be seriously considering your alternatives.
Bartholomew says his company decided to move its older clients who had shorter investment time horizons or who needed their capital for income, into cash and gilts, leaving only about 30% in one or two of the stronger equity unit trust funds.
Den Haan says if you have 10 years to go before retirement, you should invest 50% of your portfolio in equities and 50% in managed funds. If you have five years to go before retiring you should move into managed funds now, and then gradually move into income and gilt funds as you draw closer to retiring.
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