Ingrid asks: I had recently resolved to start a long-term unit trust investment but am wondering if it is not better to delay this investment, given current global economic instability.
I am planning to invest a lump sum of R25000 as well as a monthly payment of around R1 000.
My reasoning is that a portfolio containing equities will almost certainly lose value in the immediate term. Is it not better to kick off the investment when the markets are somewhat more stable or optimistic?
Maya replies: I love monthly investing because you don’t have to worry about timing the market. Your money just goes off each month and if the market has fallen you buy more units, so in fact you hope for a period of weakness. There is no reason not to start your monthly investment immediately and just let it grow on its own.
In terms of your lump sum, the markets have just become quite a bit cheaper. In fact Gavin Came of the Financial Intermediaries Association of Southern Africa recommends that people planning to top up their retirement annuities with a lump sum should take advantage of the weaker markets and invest now.
The problem is that no one has a crystal ball, we know the markets will be more volatile but when do you know it is the right time to invest when the market is up 15%? Then you will wonder if it has run too far and maybe you should wait for a better time to invest.
Trying to time the market is near impossible, you need to rather look at valuations. In terms of valuations the market is not expensive, so it is likely you will make money over the next five years even if we experience more uncertainty over the next year.
Remember this is a long-term investment and short-term movements should largely be ignored.
In uncertain times a good strategy would be to invest in a quality balanced fund or a value fund that will seek out good investment opportunities but which can sit with a relatively high level of cash if the fund manager feels the market is expensive or in dangerous territory. Good examples are funds like Coronation Balanced Plus or Investec Value fund.
Remeber money from equities is not made by investing when there is optimism, but rather when there is fear. When markets are stable and optimistic you tend to overpay for the same asset.
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