Please see commentary on the general market volatility from the Nedgroup Investments Investment Team below:

With the US having recently lost its coveted AAA rating from Standard & Poor’s, ongoing debt woes in the Eurozone and an unequivocal slowing of the Chinese economy, it seems there is much uncertainty about the economic future. Financial markets around the world are reacting quite badly, and there could be far more to come. What should investors do?

Your financial advisor would have gone through a detailed and rigorous financial plan and would have recommended a particular portfolio for you based on your requirements. Moving your money into cash or other “safe-haven” assets now could drastically reduce your chances of meeting your inflation targets after fees and taxes are taken into account. So while it seems like you might not be losing money in nominal terms, in real terms the likelihood of achieving your long term goals could be severely constrained.

A cornerstone of our philosophy is that we search long and hard for managers who attempt to provide better levels of capital protection than the overall market indices during periods of market weakness, even if it is at the expense of lagging their peers during times when market psychology is buoyant. Equity markets have never gone up in a straight line on a sustainable basis – and it is difficult to imagine that they ever will. This volatility is the short term price that one has to pay in order to reap the longer term benefits from investing in them. While we understand that it is quite difficult to imagine a time when strong returns can be had once again, we can assure you that we have been investing with fund managers who have diligently assessed the risk/reward tradeoffs and positioned their portfolios based on this in-depth analysis.

Over the short term, the market is like a popularity contest, where emotions can swing from one extreme to the next but over the long term, market pricing is overwhelmed by fundamental value. For this reason, we prefer to take the optimal viewpoint of placing very little emphasis on taking action largely based on the short term outlook – and we recommend that our clients do the same.

Significant historical evidence shows that periods of extreme market uncertainty and fear have been followed by some of the best periods for achieving good market returns. Many people don’t realise that there is often a huge disconnect between economic performance and financial market performance – i.e. one cannot easily be forecasted from the other. So while we are not particularly optimistic about prospective short term economic outcomes, we do believe that your portfolios are appropriately positioned to perform reasonably over an appropriate measurement period despite global market conditions.

As long as investors have gone through a structured and disciplined process to map their goals to their investments early on in their financial planning strategy, our recommendation is to sit tight.

The graph shows the JSE (In blue) illustrating the returns of 100% share portfolio, a balanced fund (in turquoise)which has around 60% in shares and a stable fund (in red) which has around 20% in shares - a long term view

This graph shows the same three investment portfolio during the recent finacial crisis. When markets perform poorly, portfolio's with less shares are more protected.