Mr Market needs time to deliver results

Everyone has an opinion about the direction of Mr Market. If you are investing for future goals, pay less attention to the babble and stay true to your investment plan.

This past week I read that because of the demand for gold and platinum, that JSE Resource stocks are up and that a strong performance is bullish for the market averages going forward. Then I read that the stock market averages will, in fact, be unable to rally significantly from current levels because industrial and bank stocks aren't performing well.

Nedbank Capital strategic research head Mohammed Nalla said the big question was whether an emerging market sell-off was entrenched based on global monetary policies. "Should this be the case, the JSE could very well record a steeper correction than is currently being priced into the market."

He pointed out the top 40 index, in dollar terms, posted the biggest monthly decline in September since May 2012, on the rand, which weakened 5.9% against the dollar in September alone. In rand terms, the top 40 posted the biggest monthly decline since June 2013, when uncertainty regarding the US Federal Reserve's tapering plans hampered demand for emerging market assets.

So what now? Stick to the rules that guide our buy and sell decisions despite short-term emotional swings in the market. Rules that steady our emotions and keep us out of trouble; rules that keep us in the game even when we want to run for the exits.

Investment returns are determined principally by risk, and that a diversified portfolio's expected return is a result of its exposure to certain risk market-based factors. It is important that your investment earns enough returns to maintain or increase the buying power of the money you invested.

Time in the market allows you to tolerate the ups and downs of the market (volatility). The length of time you have available to invest can help you decide on the type and level of risk you would be willing to take, such as waiting out short-term ups and downs in order to achieve long-term rewards. Time can have a profound effect on an investment through the power of compounding, which is when both your original investment and your returns grow over time.

With strict Budgeting, the appropriate investment plan can be structured so as to lower the overall portfolio risk.

The main challenge during retirement will be to make your capital last for as long as possible. How long your capital lasts will depend on the percentage income that you draw from your investment, as well as the investment returns you achieve on your capital during retirement. A study by the Trinity University measured the "success rate" of various portfolios from 1926 to 1995. The "success rate" is based on the time an investor could sustain a given withdrawal rate without depleting his investment assets. The Trinity study adjusted withdrawals for inflation/deflation. This analysis showed that for a 30 year pay-out period and a 4% withdrawal rate, balanced portfolios offered a 98% success rate. At a 7% plus withdrawal rate, balanced portfolios run out of capital in 31 years (Assuming 12% growth/6% inflation).

Don't chase someone else's portfolio. And because most of us ignore the mathematical rule of 72, we overestimate the time it takes for our money to double in value. To calculate, we take our assumed rate of return and divide it into 72. If we assume the average historical return for the stock market of 12% and divide that into 72, we can assume our money will double over six years. Sometimes stocks rise a great deal more or decline significantly. But when we are planning for the future we are forced to employ averages, and in this case doing so provides an estimate that our savings should double in eight years.

Don't reach for return by taking on too much risk. The goal in investing is to be wrong as little as possible with our hard-earned money.

A 2013 Morningstar study measured the success of individual investors trying to time the market. The study concluded that investors who moved money in and out of mutual funds performed worse than the actual performance of the fund. Over every time period measured - one, three, five, 10 and 15 years - returns were better when investors stayed put in their selected portfolio's rather than try to time the market by moving assets in and out of the fund.

If you are investing for future goals, pay less attention to the babble and stay true to your investment plan.

Mr Market needs time (not timing) to deliver results.