Time can be an investor's best friend or worst enemy when investing. While time allows investors to ride out market volatility and participate in recoveries, lack of time can force riskier moves close to retirement. Research showed that between 2002-2016, the worst cumulative return over 3 years in the South African equity market was 0.76%, including the 2008 crash. Returns improve over 5+ years. Short term (1 month, 1 year) returns saw larger variances. The analysis demonstrates that remaining invested long-term in equities, through allocating assets appropriately based on risk tolerance and time horizon, can avoid losses to inflation. Timing the market is difficult and often means buying high and selling low.

1. when it comes to
investing, time can be
your best ally, or your
worst enemy.When
time is on your side, you have the luxury of
being able to ride out the volatile periods, and
subsequently share in the good times that
follow market corrections.These recoveries
are often initially intense in nature, and
contribute a big part of investment returns
over the long run.
However, if time is not on your side, it’s not
that easy.What happens if you are only two
years away from retirement and you haven’t
saved enough to reach your retirement goals?
Inevitably you are going to want to take more
risk in order to try and make up for
lost ground.
But what happens if there is a massive
market correction, like we had in 2008? This
is where time is your biggest enemy. After
the crash of 2008, it took the South African
equity market about two years to get back
to the levels that it was before the crash (see
graph).The equity market lost roughly 40%
of its value over a period of only nine months
(May 2008 to February 2009). So just
imagine the disastrous consequences if you
were a new investor in January 2008, that
didn’t know any better.
But this is where it gets interesting.We
did some research on the JSE ALSITop40
Total Return Index (TRI), going back all the
way to June 2002.What we found was quite
fascinating, and it illustrates how time can be
your biggest friend when it comes to investing.
Many potential investors perceive
investing in the stock market as being just
like gambling, but the numbers show that this
is very far from the truth.
Going back to June 2002, if an investor
entered the market at any point in time and
stayed invested for a period of three years
and longer, the worst (cumulative*) return
over any three-year period was 0.76%. Keep
in mind that this includes the crash of 2008.
The best cumulative return over any three-
year period was 207%.The picture looks even
better over a five-year period, with the worst
cumulative return being 33% and the best
return over any five-year period being 370%.
It is important to stress that these returns
were cumulative in nature, and
not annualised.
But, beware the volatility! We
also looked at the numbers over
a period of one month and one
year, and here it’s a different story.
Over one month, the lowest return
was -13% with the highest return
14%. Over a year the variance was
even bigger, with the lowest being
-38% and the highest 73%.
The variance in returns is
recorded in the table.What we are trying to
demonstrate is that over a period of three
years and longer, an investor would not have
lost money in nominal terms if they were
invested in the South African equity market
at any point between 2002 and 2016,
including the market correction in 2008.
The other important point is that investors
should remain invested during times of
market volatility. Investors who try to time the
market will get it wrong more often than they
will get it right. Quite often, the consequence
of this is that they end up buying high and
selling low.
As already mentioned, market recoveries
often happen very quickly after a correction,
and if an investor decides to get out when the
going gets tough, it becomes
very difficult to get back in at
the right time.
For example, an investor
that was invested for a 10-year
period, from January 2006 to
December 2015, would have
made a cumulative return of
270% on their investment, but
if they missed only the top five
months during the 120-month
period, the total return would
have been 220%.To put this in perspective,
a fifth of the total return came from only five
months. Also, three of the five top performing
months were in the first six months of the
recovery after the 2008 crash.
There is only one way to avoid time from
being your biggest enemy when investing,
and that is to ensure you have a goal, and
a plan that guides you on how to get there.
Minimising investment risk should not be
done by trying to time the market, but through
an appropriate asset allocation strategy,
reducing your exposure to volatile asset classes
depending on your time horizon.This is where
proper financial advice is invaluable. ■
editorial@finweek.co.za
22 finweek 14 July 2016 www.fin24.com/finweek
PORTFOLIO MANAGEMENT
Trying to time the market?
By Rupert Giessing
marketplace investment
The performance of the JSE’s ALSI Top40 Total Return Index indicates that you will have a hard time getting it right.
0
01/06/2002 01/06/2004 01/06/2006 01/06/2008 01/06/2010 01/06/2012 01/06/2014 01/03/2016
4 000
2 000
6 000
8 000
JSE’S ALSI TOP40 TOTAL RETURN INDEX (JUNE 2002 TO MARCH 2016)
ALSI TRI RETURNS VARIANCE OVER DIFFERENTTIME PERIODS
Permonth CumulativeTRI Cumulative Cumulative
ALSITop40TRI 12-month 36-monthTRI 60-monthTRI
Minimum return: -13.24% -37.59% 0.76% 33.42%
Maximum return: 14.07% 73% 207.41% 370.11%
Average return: 1% 20% 76% 129%
*Acumulativereturnistheaggregateamountthataninvestmenthasgainedorlostovertime,independentoftheperiodoftimeinvolved.
Investors
shouldremain
investedduring
timesofmarket
volatility.
RupertGiessing isadirectoratVistaWealth Management,a
representativeundersupervisionofAccredinet FinancialSolutions.