The investment industry loves using words that conjure up emotion as it serves their agenda. Of all these words, “RISK” is the most misrepresented.
If you google “RISK”, the answer you get is “a situation involving exposure to danger”. Now who wants to do that? Coupled to this we hear stories about stock market crashes where people have lost a lifetime of savings. The truth about the stock market is 100% the opposite, as it is the only place that one can beat the real enemy, inflation.
So yes, the stock market does experience volatility in the short term, but this is always temporary and understanding and accepting this will allow you to save your way to building real wealth.
Some fund managers or financial advisers want you to believe that they have special powers that enable them time the market thereby avoiding the temporary downturns. This is a fool’s game and research shows that one would need to get timing the market correct 78% of the time just to equal long term market returns.
The truth is that we need to be invested in the stock market (the great companies of the world) all the time and missing out on just a few key days has disastrous results.
To illustrate this point, see the graphic below which shows the performance of R100 invested in the FTSE/JSE All Share Index (January 1999 to December 2021).
One can see the effects of missing out on just a few days over those 22 years. Hindsight is a perfect science, but the truth is that no-one knows when markets will be up or down, staying invested is key.
To be a successful investor, remove the word “RISK” from your vocabulary when investing in the stock market, instead replace it with “VOLATILITY” and understand that volatility is your friend.
Other words or phrases that one needs to change to make your investment journey more comfortable are to change:
High risk portfolio to high return portfolio
& Low risk portfolio to low return portfolio
Be kind to yourself and once you have chosen an investment strategy with your planner that speaks to your personal Lifestyle financial plan, don’t check up on it daily, weekly, or even monthly.
Focus on what you can control, your behaviour.
Dirk Groeneveld, Certified Financial Planner
t. 083 261 9287
Client Care Lifestyle Financial Planning
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- Previous Columns:
- Missing The Best 10 Days!
- Cash is Killer
- Combating Inflation During Retirement
- Maintaining Health In Retirement.
- Dealing With Loneliness And Isolation In Retirement
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