Page 32 - Waterfall Issue 9_2022

Waterfall News

“One sure way of being disappointed
by equity markets is to avoid
investing in times of uncertainty,
coupled with an inappropriate

investment time horizon.”

markets is to avoid investing in times of uncertainty, flow management plan tailored to your own investment
coupled with an inappropriate investment time horizon. needs. The previous graph also depicts the time horizon
required to achieve certainty around the expected returns
In the short term, one should expect growth assets to of equities. Cash flow management accounts for the time
underperform at times. However, over longer periods, horizon of riskier assets (in the short term), balanced by
the inflation-beating returns of equities cannot be requirements around immediate income, emergency
ignored. In the graph below, this concept is explained expenses, and other more interim capital requirements
in the return profile of the PSG Wealth Creator Fund that need to be planned for. This ensures a more robust
of Funds (a local equity unit trust) since inception. financial plan where savings can be invested in growth
assets aligned with appropriate time horizons.
PSG Wealth Creator FoF: Distribution of
historical rolling returns DON’T FOLLOW THE NOISE IN THE
MARKETS – TIME IN THE MARKET IS WHAT
COUNTS MOST
After the sell-off in the first five months of 2022, especially in
the US stock markets (which were down for eight consecutive
weeks), it is easy to extrapolate (as many forecasters are
doing) and claim that market returns will be lower than
the average for the next decade, after the phenomenal
decade from 2010 to 2019. It is, in fact, not necessarily true
that the US stock market had outstanding returns for this
past decade. Out of the last nine decades prior to 2019,
investors in the S&P 500 would have experienced only the
fourth-best decade out of these nine (Morningstar). This
Source: PSG Wealth research team, Data as at 31 May 2022 illustrates that it is much better to have time in the market
than trying to time the market, so make sure that you have
THE IMPORTANCE OF RISK PROFILING AND adequate cash flow management to invest appropriately
ALIGNING WITH RISK APPETITE across the various asset classes in your portfolio.
Risk profiling and risk appetite tend to be associated with
gambling. Investing with an appropriate investment horizon A qualified and competent financial planner will analyse
(so that you don’t need to withdraw your invested assets) your individual needs and aspirations and, taking the above
is key to mitigating both idiosyncratic and systemic risks. factors into account, co-craft a robust plan with you to help
To mitigate the risk of volatility related to asset class choice you achieve your financial goals. Although the best time
and investment strategy, it is crucial to have a robust cash to start was yesterday, the second-best time is today.

30 Waterfall Issue 9 2022