Cool young investors show how you handle a crisis – Imara

Cool young investors are showing how to react in a market crisis … just ignore it.

The insight comes from Imara Asset Management South Africa, a member of the pan-African Imara financial services group and a business that complements work for pre-retirement retail investors with a growing customer-base among investors under 35.

Financial planner Thato Sebaeng says the latest rollercoaster ride on local and international equity markets is notable for the mismatch between the reaction of nervous professionals and the strong nerves of well-advised clients – particularly in younger age brackets.

She points out: “Phones have not been ringing off the hook because clients have been panicked by some big daily losses on the markets. Very few retail clients have raised concerns or sold out of positions for fear of further loss.

“This is in sharp contrast to the jitters of some market professionals, traders and sections of the media. Those too close to the market sometimes scare themselves because they see big hourly or daily shifts – shifts that might soon be corrected.

“A well-advised amateur taking a longer view may have a better perspective.”

Younger clients are particularly cool in a crisis.

Thato notes: “We invest a lot of time on market education. A key educational message for equity investors is that time in the market is your best risk manager. History shows that over the long term a prudent investor in the share market will achieve inflation-beating returns and is well placed to compound them, year after year.

“This message goes down especially well with investors under 35 who might have 30 or 40 years of market growth to look forward to.

“We’re thrilled by the ‘stick-with-it’ reaction of these investors.”

She says willingness to ride out market gyrations shows clients are confident appropriate, needs-based strategies are in place.

Sebaeng adds: “It also indicates that market education can help to combat destructive behaviour like excessive investment switching that drives up costs and wrecks your chance of optimum gains.”

Another educational message has also helped to temper client response … that losses off the top are not losses of your original principal.

Sebaeng explains: “Current volatility comes after five years of market gains. Some long-term investors have seen their investments more than double in that time.

“Losing 5% or even 10% off the top is not ideal, but in most cases the net position after a three- or five-year commitment is still in line with long-term goals and represents an inflation-beating return, usually by a comfortable margin.

“Beating inflation with something to spare remains the long-term goal of clients who understand the impact of inflation and tax on income-based returns. These prudent long-term clients seem to be panic-proof at the moment.”