TALKING MONEY

Feel free to reach out to PSG Wealth Adviser Ross Marriner directly.

It would be amazing if our investments consistently increased in value without ever declining. Unfortunately, this is not how real-world investing works. The only way to completely avoid volatility is to invest exclusively in low-risk assets such as bank fixed deposits or money market accounts. However, while these options provide stability, they typically offer returns that barely outpace inflation. Over time, inflation significantly erodes purchasing power—a reality many investors underestimate until it has already diminished their wealth.

In South Africa, the average before-tax return from cash-based investments over the past 90 years has been approximately 6.9% per year. During that same period, inflation averaged about 6.2% annually. This means that investors relying solely on cash or similar low-risk assets achieved only a marginal real return. To grow wealth meaningfully and outperform inflation, it becomes essential to include higher-risk assets—such as equities—in your investment portfolio. Historically, South African equities have delivered an average annual return of about 14%, translating into a real growth rate of roughly 7.8% per year. While this outperformance is substantial, it comes with higher volatility. Equity markets do not rise steadily; rather, they fluctuate—sometimes sharply—making the experience feel as if you are riding on a financial roller coaster.

To enjoy the superior long-term gains that equities can offer, investors must be willing to endure short-term discomfort. Market sentiment swings repeatedly between optimism and pessimism, and equity markets move in cycles, much like the changing seasons. Periods of decline, while unpleasant, are normal—especially following extended phases of strong performance. Just as winter follows summer, downturns are a natural part of the investment climate. Importantly, just as winter eventually gives way to spring, negative market periods also pass. Maintaining perspective during these downturns is crucial for long-term success.

Attempting to predict the perfect time to enter or exit the equity market is extremely difficult, even for seasoned professionals. Many investors, unnerved by falling prices, move their money into “safe” assets such as cash during downturns. The problem is that market recoveries often occur unexpectedly and rapidly. Those who are not invested when markets rebound can miss out on some of the most profitable days—potentially causing lasting damage to their long-term returns.

Rather than reacting impulsively to short-term volatility, investors should follow a structured and disciplined approach built on a sound financial plan. A robust investment strategy focuses on appropriate asset allocation, prudent investment selection, and effective diversification. Regularly reviewing this plan is also essential, as both personal circumstances and market conditions change over time.

Finally, the impact of inflation must always be considered when designing a financial plan. An experienced Certified Financial Adviser can help determine the appropriate mix of equities and other assets based on your age, financial goals, risk tolerance, and personal situation. By balancing risk and return intelligently—and by staying the course through inevitable market fluctuations—you can give yourself the best chance of achieving real, long-term financial growth.