MyMoney Online

How to protect your wealth when the JSE is falling

(Click here for more personal finance articles such as this one.)

The Johannesburg Stock Exchange has enjoyed stellar returns for more than five years; it won’t go on forever. Is it wise for long-term, small investors to cut their losses and flee for “safety” if (read "when") the market turns sour? Almost certainly not! Let us explain…

Turning “paper losses” into actual ones

“Sell high, buy low” is the cornerstone of profitable trading in any goods imaginable. You cannot get rich by doing the opposite, yet all over South Africa small investors will, as in the past, start doing exactly this when the bear market (i.e. when share prices are falling) makes its return.

Selling when the market is down turns a “paper loss” into an actual one.

A “paper loss” happens when the value of the shares (or any other asset) you own falls to below what you paid for them. However, until you sell your shares, the loss has only been taken “on paper”. Only when you sell do you “realise” the loss. In other words, if you sell you suffer a real, permanent loss while retaining your shares entails keeping the loss “on paper” - it isn’t permanent and the share price can still recover.

An example of a “paper loss”:

Thandi moves to Cape Town and buys a small studio flat in the swanky city centre for R1-million. The property market goes through a slump and, three years later, it’s only worth R800 000. Thandi still owns the exact same property, she still lives there and nothing much has changed.

Thandi suffered a “paper loss”. If, however, she sold at R800 000 she would have made real the loss of R200 000 and she would be without her flat.

Stay calm! Don’t panic!

If you're making investments for the long-term (longer than, at least, five years) you should not get spooked by short-term market volatility. If you have a well-diversified portfolio, you'll do well to stay the course; only change your strategy if your own circumstances or goals change.

While the stock market is very volatile over the short- to medium-term, its trajectory over the long-term has always been up. In fact, the stock market has never lost value over any ten year period in its entire history. Over longer terms there is close to no risk that a well-diversified portfolio of stocks will lose any value. It is, obviously, possible to suffer short term losses but for those taking the long view these losses are completely irrelevant.

Over the long-term no other asset class has ever performed better than stocks and those who ride out the inevitable bear markets (i.e. falling markets) are always rewarded for being patient and staying cool under pressure.

It's normal to panic, but if you act on that fear, by selling shares you bought as long-term investments, you will damage your wealth in a way that no market crash, no matter how prolonged or severe, can ever do.

Stock market lows are a great time to invest even more. Believe it or not, a great way to get rich could be to do exactly the opposite of what many small investors will soon feel compelled to do.

Remember, the stock market will fall again and again and again and again. If you freak out and sell every time it does, it won’t take long before you’ll be reading about the recovery while having nothing left.

(Click here for more personal finance articles such as this one.)

Kabous le Roux is a financial journalist and digital content producer at Primedia Broadcasting. He cut his teeth at iafrica.com where he was the Personal Finance, Property and Business Editor. Kabous has a passion for making complex ideas broadly accessible.

702 welcomes all comments that are constructive, contribute to discussions in a meaningful manner and take stories forward.

However, we will NOT condone the following:

  • Racism (including offensive comments based on ethnicity and nationality)
  • Sexism
  • Homophobia
  • Religious intolerance
  • Cyber bullying
  • Hate speech
  • Derogatory language
  • Comments inciting violence.

We ask that your comments remain relevant to the articles they appear on and do not include general banter or conversation as this dilutes the effectiveness of the comments section.

We strive to make the 702 community a safe and welcoming space for all.

702 reserves the right to: 1) remove any comments that do not follow the above guidelines; and, 2) ban users who repeatedly infringe the rules.

Should you find any comments upsetting or offensive you can also flag them and we will assess it against our guidelines.

702 is constantly reviewing its comments policy in order to create an environment conducive to constructive conversations.

Read More
Where to invest money you intend to leave to your kids

Where to invest money you intend to leave to your kids

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

How to survive retrenchment

How to survive retrenchment

Your rights (and their responsibilities) upon retrenchment. Bruce Whitfield interviews Personal Financial Advisor Warren Ingram.

3 shares that'll bring home the bacon

3 shares that'll bring home the bacon

The Money Show’s Bruce Whitfield interviews Overberg Asset Management analyst Kirk Swart.

The best investment on the JSE right now and one from abroad (by Anchor Capital)

The best investment on the JSE right now and one from abroad (by Anchor Capital)

Bruce Whitfield interviews Anchor Capital Aggressive Long Short Fund Portfolio Manager Liam Hechter for his “stock picks” feature.

You’re wrong if you think you (or anybody else) can time the market

You’re wrong if you think you (or anybody else) can time the market

Don’t even try, because inflation will eat you for lunch, says personal financial advisor Warren Ingram.

3 best companies to invest in right now (by Nefg Fund Managers)

3 best companies to invest in right now (by Nefg Fund Managers)

The Money Show’s Bruce Whitfield interviews Nefg Fund Managers Chief Investment Officer Gerbrand Smit.

Popular articles
Banting, the drive behind butter shortage in the world

Banting, the drive behind butter shortage in the world

The shortage of butter is a global problem as more people are switching low-fat for full-fat milk, says Dr Koos Coetze.

Why the PAC wants South Africa renamed Azania

Why the PAC wants South Africa renamed Azania

Pan Africanist Congress's Narius Moloto explains why it supports the name Azania, a word which he says has Arabic origins.

Opinion:  Bishop Lekganyane is right

Opinion: Bishop Lekganyane is right

Stephen Grootes weighs in on comments made by the Zion Christian Church Bishop at the weekend.

Getting to know MP, Dr Makhosi Khoza

Getting to know MP, Dr Makhosi Khoza

Dr Khoza is admired by South Africans for her role in the SABC inquiry as a ANC member of parliament.

It's not the end of the road... Top tips to improve your matric

It's not the end of the road... Top tips to improve your matric

"Recognise that it’s not the end, it’s the beginning." Expert advise for school-leavers who want to improve their results.

Who is Advocate Tembeka Ngcukaitobi?

Who is Advocate Tembeka Ngcukaitobi?

The EFF lawyer stole the show during the state capture report court battle.

How to make your first million

How to make your first million

Warren Ingram discusses his new book in which he shares practical ways for ordinary people to achieve financial freedom.

3 easy questions could bag you R2000!

3 easy questions could bag you R2000!

WIN R2000! But only if you can prove you're a whiz of the MTN Biz Quiz by answering the following three questions...

Blesserfinder: Matching you with a sugar daddy near you

Blesserfinder: Matching you with a sugar daddy near you

Is social trend Blesserfinder, where girls are allegedly matching up with rich 'benefactors' in exchange for sex, a real thing?