Investment plan

Do you have an investment plan or do you invest according to your wishes?

We have faced extreme equity market volatility since the start of the year, both locally and internationally. Fears of higher inflation, even before the war, lead to higher interest rates around the world. China’s Covid-19 outbreak has also worsened with stringent restrictions put in place by its government. Uncertainty about the evolution of all these factors has exerted strong pressure on stock markets over the past two months.

So what do you do in times like these? Do you follow a “stop-loss” or “wait and see” strategy? Looking at the news feed, one could say, at first glance, that there is no light at the end of the tunnel and that further declines could still occur in the coming months.

Who knows what will happen today, in a week or in a year? Nobody knows. But let’s say you sell and the market goes down again and you were right in your stop-loss strategy, when will you get back into the market? If your answer to this question is, “I will return to the markets when there is more certainty, without inflation fears or geopolitical tensions,” this strategy by which you are trying to time the market will most likely cause long-term damage. term for your investment. wallet.

When there is no light at the end of the tunnel you have to be in the stock markets because when the world comes out of the dark tunnel and you see more light the markets started going up a long time ago and you will be too late to return to the markets if you were sitting on the sidelines waiting for the “right time”.

Unfortunately, no one is going to ring the bell saying that the market has now reached its highs and you need to sell or that it has reached its lows and you need to buy again.

So how or when do you decide to enter the market or know what to do with all of this volatility and uncertainty facing the world? The answer to all these questions is: do you have an investment plan? Warren Buffet said: “Success in investing does not correlate with IQ Once you have ordinary intelligence, what you need is temper to control the impulses that get people into trouble. others by investing.”

Therefore, the only way to overcome the emotion of investing is to make sure you have a plan that fits your specific needs and to stick to it, no matter all the noise.

We know for example that an equity investment is longer term (typically seven years+), where one can expect to grow well above inflation, despite volatility and periods of negative growth at shorter term.

Source: Schröders

“But why can’t you, with your knowledge and experience, sell when the markets are high, then wait a bit, then buy back when the markets are low?” My answer to this question will be: “I can’t because I don’t know.

Again, I’m not in bad company. At one of Berkshire Hathaway’s general meetings a few years ago, Buffet’s response to a similar question was that if his financial adviser took him out of the market at the top of the market in 2008 and at the bottom in 2009 back in the markets, he would have fired the adviser because he was only lucky to get it right.

It is therefore extremely important to devise the right plan and strategy and stick to it.