The year began amidst a raging bull market. Global equities have made up all the post-pandemic losses and are up 85% (as at 7 May 2021) since their March 2020 lows. Yet, our data shows many investors have missed the bull run altogether or are significantly underinvested, waiting for the ‘right’ opportunity to re-enter. Those who did stay invested through the volatility or re-entered the market in 2020 have a slightly different problem (‘Should I sell?’).
It is safe to say that most of us belong to one of these categories. History shows there are time-tested methods to deal with these challenges and earn a respectable return over the long term.
To tackle the last problem first (‘Should I sell?’), we believe it would be imprudent for investors who have ridden the bull market thus far to cash out. We do not expect a major bear market to develop, at least in the next year, given accelerating global growth and corporate earnings expectations and extremely loose policy settings. We expect economies and businesses to gradually return to normalcy by the end of the year as the pace of vaccinations picks up worldwide.
Based on decades of market history, it is hard to make a case for an equity bear market without an accompanying economic recession. Therefore, the risk of trying to time when to exit the market before any short-term correction and re-enter at the bottom are greater than staying invested (since the investor could lose some of the best days in the market by staying out). For this group, the best course would be to ensure that they stay well-diversified across asset classes and sectors and rebalance their portfolios if they have strayed significantly away from their risk tolerance.
Cost of inaction
For those who have stayed out of the market before or after the pandemic, the challenge of when to get back in is seemingly much harder, given that equities are now at record highs and there are increased concerns about a short-term correction. Often, their hesitation stems from a desire to perfectly time their re-entry. In our experience as wealth managers, this is the single most common investment mistake.
For this group, the salient point to consider is the cost of inaction. A simple diversified portfolio (50% global stocks and 50% global bonds) for buy-and-hold investors has returned close to 6% per year over the past 10 years, even after taking into account six 10%+ equity market pullbacks, including the 34% correction at the height of the pandemic in March 2020. At that rate of return, USD10,000 invested a decade ago would have built a roughly USD18,000 nest egg. An equivalent savings deposit paying, let’s say, 1% interest would have grown to only about USD11,000, not even keeping pace with inflation.
The rules of investing
This example brings us to the seven key rules of saving and investing wisely:
- Prepare an investment plan based on your financial goals, risk tolerance and time horizon;
- Set aside funds for short-term exigencies in cash;
- Invest most of the remaining funds (say 80%) in a core portfolio broadly diversified across asset classes, geographical regions and industry sectors. This will help limit the downside from unexpected events (because they will happen over our lifetime!);
- Stay invested through market cycles, since time and the miracle of compounding returns is your friend;
- Rebalance the portfolio at regular intervals (say twice a year) to bring it back to your risk tolerance;
- Use the remaining funds (at most 20%) – let’s call it ‘funny money’ – for short-term trading (for those who want the thrill). Make sure this is based on sound research and not the latest fad, and done with a cool head – not be too greedy at the top and panicky at the bottom (using stop-losses would help remove personal biases and limit downside risks for this part of the portfolio); and
- Finally – and this is the crucial part – follow the investment plan! Procrastination, as we saw above, is the greatest enemy of the investor.
For some investors, putting all funds to work immediately could be psychologically challenging. For this group, setting up a pre-determined regular investment plan would remove any personal biases. This so- called dollar-cost averaging strategy would help the investor to automatically benefit from any market upside, while allowing the investor buy cheaper if the market pulls back along the away. This strategy could include pre-determined rules to accelerate purchases in the event of larger-than-expected market drawdowns.
In the long run, the market is always a bull. The above strategy should enable the investor to overcome the downturns, mitigate biases and stay in the game. Afterall, we need to get on the bull before we can ride it.
(Marc Van de Walle is Global Head of Wealth Management at Standard Chartered Bank)
Nigerian Stock Exchange Bounces Back, Gains N132 Billion in Market Cap
The Nigerian Exchange Limited rebounded on Wednesday with the market capitalization surging by N132 billion.
This uptick was propelled by the positive performance of key stocks, including Seplat Energy (+10%), Meyer Plc (+9.79%), Sunu Assurance (+9.56%), Nestle (+9.52%), and Consolidated Hallmark Holdings Plc (+9.24%).
The All-Share Index closed rose by 0.34% to 71,283.34 points, reflecting investors’ optimistic sentiment, particularly in medium and large-cap stocks with solid fundamentals while the market capitalization increased to N39.007 trillion.
Despite a decline in total deals and volume by 19.14% and 32.55% to 6,579 deals and 360.60 million units respectively, the total value for the day increased by 17.64% to N6.61 billion.
Among the gainers, Seplat, Meyer, Sunu Assurance, Nestle Plc, and Consolidated Hallmark Holdings Plc stood out, closing at N2.310, N3.59, N1.49, N1.150, and N1.30 per unit, respectively, after gains ranging from 10% to 9.24%.
The losers’ chart was led by Guinea Insurance, down 10%, followed by Omatek (-9.88%), Abbey Mortgage Bank (-9.68%), Neimeth Pharma (-9.45%), and Tantalizer (-8.62%).
Performance across sectors was predominantly bullish, with the Insurance, Consumer Goods, Oil/Gas, and Industrial Goods indexes recording notable advancements of 1.17%, 0.89%, 6.06%, and 0.01%, respectively.
However, banking stocks emerged as the only laggard for the day, declining by 0.56%.
GT Bank (GTCO) dominated trading activities, emerging as the most traded security in terms of volume and value, with 56.91 million units worth N2.19 billion traded in 261 deals.
This positive momentum signals a renewed fervor in the Nigerian stock market.
Robinhood Expands to UK, Introducing Commission-Free Stock Trading
Robinhood Markets Inc., the pioneer of commission-free stock trading, is venturing into the UK market, making its international debut by offering British retail investors access to more than 6,000 US-listed stocks and other securities.
This move follows the company’s success in the US during the Covid pandemic, where it gained popularity among first-time investors during the “meme-stock” frenzy.
While the enthusiasm among retail investors has cooled, Vlad Tenev, Robinhood’s CEO and co-founder, aims to disrupt the UK market by offering a range of attractive features.
Tenev stated, “We’d like to help lower fees for all customers in the UK, just like we did in the US back in 2019, right before Covid.”
The features include 5% interest on uninvested cash, zero trading commission, currency fees, and trading outside of market hours. Users can join a waitlist now, and the service aims to be fully available starting in 2024.
Despite facing regulatory scrutiny in the US for its role in the “meme-stock” frenzy and accusations of encouraging excessive risk-taking, Robinhood has ambitious plans for international expansion.
The company will compete with local platforms like Revolut and Freetrade, as well as US-based rival Public.com, which expanded to the UK in July.
Tenev believes that Robinhood’s technology-focused approach gives it an edge in expanding globally.
He emphasized, “The fact that we’ve built this platform from the ground up and we’re a technology company and financial services, not a brick and mortar institution, I think makes us more able to expand internationally in ways that traditional financial institutions can’t.”
Robinhood also plans to introduce crypto trading in the European Union in the coming weeks, further diversifying its offerings beyond traditional stocks.
Despite a recent 11% decline in transaction-based revenues in Q3 2023, Robinhood continues to explore new revenue streams, including the launch of a credit card in the US.
The company’s shares, although up 10% this year, remain 90% lower than their peak.
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