The doldrums are noted for calm periods around the equator when the winds disappear trapping sail-powered boats for days or even weeks. There are many stories told of sailors going completely crazy while desperately hoping for the wind whilst running out of supplies.
For investors the past five years must feel a lot like being trapped in the doldrums with the FTSE/JSE All Share Index stuck in a range effectively going no-where.
Much like the sailors, investors are at a risk of going crazy during times like these. Long-term established investment principles are quickly forgotten as investors are driven to crazy behaviour, not through the fear of running out of water, but the fear of running out of money, this leads to foolish pursuits for alternate silver bullet solutions, which might see careless switching of funds / managers or in the worst case being suckered into the promise of higher returns by crooked schemes. However, the most common error investors make is the perceived security and erroneous allure of short-term cash returns.
89 years of data is simply tossed “overboard”, as investors jump out of equities into cash based on the poor performance of the last 5 years. This is completely irrational. At least sailors suffering from dehydration and scurvy had an excuse for their crazy behaviour.
As a long-term investment strategy “Cash is Trash” owing to its inability to generate real inflation beating returns, this is exacerbated by higher tax on interest earnings, which further erodes the ability of cash to stay ahead of inflation.
In closing and sticking to my analogy, selling out of equites and investing in cash now is akin to jumping overboard, instead of waiting patiently for the winds to come.
Mcomm, CFP®, HdipTax
T. 021-851 3746