\nTip 1: The past does not predict the future<\/strong><\/p>\n
It\u2019s the most common mistake in the book, so entrenched in investment culture that even the most seasoned among us fall into this trap. It\u2019s the thinking that \u2018X Asset Managers beat the index by nine percent last year so they\u2019re the best bet this year\u2019. X Asset Managers in turn, who may not even have the same actual people on board anymore or may have undergone a whole host of other changes to the \u2018magic formula\u2019, adjust their fees up accordingly.<\/p>\n
There are plenty of problems with this. One is that, if you keep a close eye on the top performers, you\u2019ll notice that the same managers are almost never ever in the top spot consecutively. This means that if you doggedly follow the best performers, you\u2019re going to switch funds every year, decimating your return potential.<\/p>\n
Secondly, as we\u2019re well aware of in other spheres of life but conveniently forget in investing, our global future and rate of change in the next decade will be different to anything in the last century.
\n\u201cBut surely that won\u2019t change the actual nature of the markets,\u201d some may say.<\/p>\n
Yes, it can. We\u2019ve already had what should be an impossibly long bullish cycle and more black swan events in a decade than ever before. We need to beware.<\/p>\n
Most of us know the two cardinal sins of investing: not preserving when switching jobs and chopping and changing funds or managers too often.<\/p>\n But what about when a crisis hits? Switching from other assets into cash may be just as harmful.<\/p>\n When the going gets tough, generally, most investors go for cash. And there is some wisdom to this \u2013 cash is a great low-risk asset that generally does well in times of crisis and is therefore event-horizon specific. But taking money out of, say, equities, and exchanging it into cash is often a case of winning the battle but losing the war.<\/p>\n The thinking is that \u2018if I get this out of equities before equities experiences a downturn and put it into cash, then switch it back, I\u2019ll save the amount I would have lost.\u2019 This gambles the losses from switching with the gains made from avoiding a loss when markets turn south. The problem with this is that most (who are not whizz asset managers by profession) will get the timing wrong. This leaves you with two losses when, longer term, simply staying put would have made more sense.<\/p>\n There are widely held misconceptions about different asset classes, many of which are harmful for players of the long game in investment. One of the most common is that equities are risky while bonds are safe, and cash is the safest of all. And a short-term glance at the market may seem to confirm this belief, however the opposite is true when it comes to longer-term strategies.<\/p>\n Think of investing in cash (a.k.a. the money market) as the investors\u2019 equivalent of stuffing your cash under the mattress. If your aim is to not lose any money \u2013 then you\u2019re in luck. That money may be safe from being lost short-term. But it\u2019s also not growing as much as it could, while other things like CPI are making it worth less and less. Equities, on the other hand, have shown to give back the bigger returns compared with cash longer term, even though short-term your chances of making losses are higher.<\/p>\n The lowest annualised local equity returns versus the highest annualised local cash returns over different investment terms<\/strong><\/p>\n <\/p>\n
\nTip 2: Switching frequently is usually a bad idea<\/strong><\/p>\n
\nTip 3: Care about shares<\/strong><\/p>\n![\"\"](\"https:\/\/www.discovery.co.za\/gallery\/discoverycoza\/content-hub\/smart-money-pillar\/graph-1.jpg\")