HOT TOPIC | The Power of Patience: Understanding the true value of your investments

In the world of finance, there's a frequently quoted saying:

"It's not about timing the market, but time in the market."

When investing, it's essential to approach the endeavor with a clear perspective on the long-term, understanding that the market will always have fluctuations, but timewise investing can yield impressive returns.

1. The magic of compounding and the time to double your money

One powerful visualization that emphasizes this principle is the timeline to double an investment. The difference in doubling time is striking when comparing low-risk to higher-risk investing. The Rule of 72, a handy shortcut in finance, gives a rough estimate of how many years it will take to double your money at a fixed annual rate of return or interest. Divide 72 by your annual rate of return.

For instance, consider a conservative fund offering a 3% annual return. By applying The Rule of 72, your investment would take approximately twenty-four years to double. On the other hand, a more aggressive fund with an 8% return would take nine years.

Source: NYU Stern

2. The Silent Thief: Inflation

There is an often-overlooked factor when considering investment returns: inflation. Think of inflation as a silent thief, gradually eroding the purchasing power of your savings. Even at a modest annual inflation rate of 6%, the value of your money decreases significantly over time. Hence, while a conservative fund might feel safer, the returns could be far less compelling once you adjust for inflation.

Source: StatsSA & SARB 2023

3. The Pitfalls of Emotional Investing

It is natural to have reservations about high-risk funds. The more volatile a fund, the larger the swings upwards and downwards. Volatility can evoke strong emotional reactions from investors. A sudden downturn might trigger panic, leading to selling at a loss, while a rapid surge might incite greed, prompting hasty decisions.

Emotional investing can sabotage the growth that investors seek. It's essential to understand that market downturns are real and often temporary. By pulling out funds during these downturns, investors risk missing out on potential gains when the market rebounds.

Source: FactSet 2022

4. The Importance of Professional Guidance

Financial Advisors are professionals equipped to provide guidance based on careful research, analysis, and expertise rather than emotion. Their insight can help investors choose the right mix of funds tailored to individual risk tolerance and financial goals. Trusted Asset Managers with a proven track record attend to investments with care and expertise.

Conclusion

The journey of investment is a marathon, not a sprint. The allure of "safe" investments can often be misleading, especially when considering the long-term impacts of inflation. Instead of reacting impulsively to short-term market shifts, take guidance from professional financial advisors and trusted asset managers.

Stay invested, stay informed: the power of your investment is most potently harnessed over time.