Choose investments according to needs, then sit it out

All the confusion and noise in the markets makes us realise that we need to think clearly before making an investment decision. Market volatility is also a reflection of investor sentiment, which will influence market direction. Usually up or down, based on fear or greed. Even the smallest rumour will affect markets when fundamentals go out of the window and sentiment is prevalent.

All the confusion and noise in the markets makes us realise that we need to think clearly before making an investment decision. Market volatility is also a reflection of investor sentiment, which will influence market direction. Usually up or down, based on fear or greed. Even the smallest rumour will affect markets when fundamentals go out of the window and sentiment is prevalent.

Remove sentiment from the equation and concentrate on fundamentals to make sound and sensible investment decisions. To achieve this, have:

l Clearly defined goals;

l A sound investment strategy that is both logical and methodical;

l Realistic expectations of the returns on your different investments;

l Patience and belief in the decisions made;

l Commitment to follow through and persevere with the decisions.

One of the most important aspects about goals and achieving them are time-frames allocated to meet one's objectives. Define time-frames according to needs in the following way:

l Short-term or liquid needs - up to three-year requirements. Cash and money market and preference shares (for those looking for tax efficiency) are most suited.

l Medium-term needs - from four to seven years. Investors can be more growth-orientated, but still need to be conservative in their choice of investments.

l Long-term needs - seven years and beyond. Where the objective is the creation of wealth to give financial independence and freedom in later years. Investments in property and the stock market is the place to be. Although investments in both these asset classes can be quite volatile, history over any 10-year rolling period shows that these investments will outperform any other traditional investment. I exclude alternative investments such as art, stamps, coins and even wine.

There are many external factors which can affect investments and alter time frames, and most of these factors are generally beyond one's control, as we see from what is happening now.

Patience is essential when investing. Over the long-term, patience will be rewarded. When one is losing money, time moves very slowly and the fear factor takes over, but one has to sit tight until markets recover - and they will - although it could take anything between two to three years.

Choose investments best suited to your needs. It is important to differentiate between a short- and long-term investment and one where you are speculating. A common misconception is the cliche of "the greater the risk, the greater the return". Often when you take great risk you could suffer bigger loss. If you are in the market at the moment and have a long-term time horizon of seven to 10 years, or even longer, do not sell quality investments. It may even be the time to start phasing further savings into these quality investments over a six-month period.

l The writer is a director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail help@pioneer.co.za

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