The chicken that stays in the farmyard pecks the crumbs

The chicken that stays in the farmyard pecks the crumbs

Over the last twelve months we experienced a great deal of volatility in global markets. At the turn of 2019/2020, Covid-19 burst onto the scene like a horseman of the apocalypse, causing global markets to tumble and investor sentiment to drop faster than a hot potato.

2020 was a big year for change. People had to adjust to rapidly changing lifestyles as a result of lockdowns, which affected nearly every part of our lives. Thirteen months later, I stand in awe of the resilience of humanity and our ability to adapt.

When disaster strikes, especially at the level of this global pandemic, the natural human response would be to protect what has already been accumulated and revise plans to work around challenges.

In the case of investments though, it might not be your best recourse. During times of uncertainty, your own emotions are your biggest enemy, since we tend to be hasty and irrational in an effort to preserve what we’ve built. History has shown however that short-term emotions can have a long-term effect on your investment portfolio from which some, never recover.

If your seeds are in the ground, you wouldn’t pull them out after they’ve germinated due to short-term adverse weather, as the weather might soon improve and the crop could still yield a great harvest. If you destroy the crop to minimize losses, you do not only lose out on the input cost, but also any potential harvest you may have had, if you stuck it out. The same holds true for investments. Paper losses are easily reversed when markets recover, but when you disinvest at the bottom, the paper loss becomes a real loss which is extrapolated by the fact that you won’t be able to benefit from a recovery since you now, have no market-exposure.

Markets have performed astoundingly over the last three months wiping out the March 2020 losses and adding value in excess of the recovery. This in itself proves why it is important to remain calm and level-headed when things get rocky.

A financial adviser can help you to cut through the emotions associated with financial decision-making and guide you through uncertain times to ultimately reap the reward.

PSG Wealth Financial Planning (PTY) Ltd is an authorised financial services provider. FSP 728.