The world will change, but this message won’t

At the beginning of 2020, not knowing what lay ahead just a few months later, we put up a billboard in Pretoria, on Solomon Mahlangu drive, with a simple message: “When the world changes, your investment goals shouldn’t.”

The idea was for the billboard to stay the same for five years. And then we record how the surrounding area changes.

So, as the potholes appear (and hopefully get fixed), the grass and trees grow, and the surrounding skyline changes, the billboard and the message will stay the same: “When the world changes, your investment goals shouldn’t.”

And the world did change. Within a few months of putting up the billboard, the whole planet was dealing with the effects of COVID-19.

In the almost two years since then, the pandemic (and lockdowns) have fundamentally changed how we work, live, and interact with one another. Like tourism and property, some industries felt the effect of restrictions more and suffered, while others, like streaming services and technology companies, thrived.

And when panic hit markets in March of 2020, some people reacted by taking their money out of the market into what they considered ‘safer’ options.

The behavioural finance team at Momentum Investments did research* on investor behaviour during the market turmoil of 2020 and asked the question: Was 2020 that different after all?

From the perspective of how investors behaved, the answer to that question is: unfortunately, not.

The research shows that in 2020 investment switches on the Momentum Wealth platform increased significantly. An investment switch represents a change in strategy – moving from one investment solution to another and often represents a trade-off of future investment returns for current emotional comfort – the flight to safety.

When the markets fell in March 2020, switching activity spiked to 300% of normal levels, according to the research paper ‘Covid-19 Investor Behaviour’ by Momentum Investments. Switching activity gradually increased as panic set in, investors moved to safety, and then scrambled to get back into markets in the recovery.

According to the research, those investors that sold ‘low’ and bought back ‘high’ after the recovery eroded as much as 20% of their portfolio on average per switch on the Momentum Wealth platform. From April to December, nearly R100 million was ‘lost’ due to switching.

And the research makes it clear: investors are prone to making short-term investment decisions that are not aligned with their long-term investment goals. They rush for safety and get stuck in safe asset classes where they remain for a large portion of the inevitable market recovery.

The message, therefore, needs repeating: “When the world changes, your investment goals shouldn’t.”

This message is based on our outcome-based investing philosophy, which places the client’s goals at the centre of the investment process. That’s because investing is personal.

And that’s why we say: With us, investing is personal. We understand that your clients don’t invest for the sake of investing but for their personal life goals.

We help construct investment portfolios or funds based on what your client wants to achieve, how much they have to invest and when they need the money by. Outcome-based investing is about providing a more consistent investment experience over time, limiting the risk and temptation of market timing. And this forms a solid foundation for a client to stick to and achieve their unique investment goals.

The world will change. But our billboard won’t. And neither will its message.

*Read the research paper ‘Covid-19 Investor Behaviour’ on momentum.co.za

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406)

 

Source: MoneyMarketing – Niel Joubert

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