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<\/a><\/p>\nShould you take refuge in cash?<\/strong><\/p>\n Given current market conditions, it is understandable that some investors would want to \u2018take refuge\u2019 in cash to ride out low equity returns \u2013 but is that a good strategy?<\/p>\n The answer is more complicated than simply looking at recent returns, said\u00a0Robberts.<\/p>\n Investment return prospects should be considered alongside:<\/p>\n “If, for example, your objectives are capital preservation and high liquidity to cover short-term needs, then cash is an ideal investment \u2013 more so now, given its attractiveness. However, investing predominantly in cash as part of a long-term strategy is unlikely to deliver the appropriate returns to grow your wealth,” Robberts said.<\/p>\n The problem with switching<\/strong><\/p>\n Allan Gray said that during periods of lacklustre or poor market returns, even the most experienced investors can lose sight of their long-term objectives.<\/p>\n “This is when the temptation to switch \u2013 selling out of your fund and buying into funds\/asset classes that are doing better in the belief that you can \u2018time the market\u2019 and generate better returns \u2013 becomes very real.<\/p>\n “While there are examples where investors have been able to do this successfully, they are few and far between and it comes down to luck,” Robberts said.<\/p>\n “At Allan Gray, we don\u2019t view short-term volatility as risk; rather we view risk as the permanent loss of capital. This is what happens when investors make knee-jerk investment decisions based on how they feel during periods of underperformance, and switch between funds at inopportune times.<\/p>\n “Those same investors who want out when the market falls often feel the lure of equities when they are performing well again.”<\/p>\n “This is counterintuitive \u2013 investors land up selling out at low points and buying at high points, effectively locking in their losses and destroying value,” Robberts said.<\/p>\n “Investors are currently focused on the risks as opposed to the potential upside, which is understandable, but as contrarian investors, we are looking for opportunities where we believe intrinsic value has not been impaired to the same extent as the price has fallen.”<\/p>\n Deciding which asset class to invest in can be intimidating and most investors fall prey to their emotions when making these decisions as opposed to relying on rational thought and researched knowledge, said\u00a0Allan Gray.<\/p>\n During times of uncertainty or heightened anxiety, it is always worthwhile taking a step back and taking stock of your long-term objectives. If your plan hasn\u2019t changed, it\u2019s unlikely that your strategy should, it said.<\/p>\n\n
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