The price of generating real above inflation returns by investing in the share market

is accepting the inherent volatility associated with equity investing.

 

Investors must remember that short-term price volatility is not the risk per se. The risk is

how you react to temporary short-term losses, which have always recovered given time.

 

The chart below illustrates the Intra-Year declines (drawdowns) versus the total return

achieved for the same calendar year. In other words, if you panicked and sold in March

2020 last year you crystalized a -40% paper loss, which had recovered to produce a positive

return of 16% by year-end.

 

The relative return between the investor who remained invested and the investor who

sold is a whopping 56%, which is a relative loss you will never recover from.

The two greatest risks facing retirees is longevity iro outliving their money and inflation and

the only way to protect against these risks is to have an appropriate investment allocation

to equities. This requires the investor to accept the short-term volatility, which is part and

parcel of investing in growth assets (shares).

 

Matching investment objectives to an appropriate investment horizon and understanding

your own personal tolerance for risk is the key to taking on a suitable level of risk to achieve

your long-term income and growth objectives.

 

Mark Williams
Mcomm, CFP®, HdipTax
T. 021-205 1133
Email. service@mwwealth.co.za

 

Last March’s panic selling is a loss one will never recover