Investing wisely: focus on what you can control

Investing is rarely simple, and knowing where to focus one’s energy can be a challenge. As we know, markets respond instantly to political headlines, economic data, and global events - and it’s easy to get caught up in the noise of the day. But focusing on factors beyond your control is both frustrating and unproductive. Long-term investors are far more likely to succeed when they focus on what is within their control, such as:

Investment goals: Whereas speculators aim to make as much money as quickly as possible, investors take a more strategic approach that begins with goal setting. While market returns are outside your control, keep in mind that well-defined investment goals can act as an anchor, guiding decisions and filtering out distractions. Goals help you focus on the returns you need to achieve your objectives, rather than chasing market trends.

Asset allocation: While you can’t control inflation, you can decide how to allocate your assets. Asset allocation, encompassing equities, fixed income, property, and cash, strikes a balance between risk and reward, helping to protect the purchasing power of your money over time. Because each asset class carries different risk and return potential, aligning your allocation with your goals can temper the impact of inflation and provide a more stable path toward your objectives.

Diversification: Political unrest, wars, global pandemics, and economic shifts can cause some sectors to surge while others struggle. Diversification spreads your risk so you’re not overly reliant on any single asset class, currency, or sector. This can mean balancing local and offshore equities, holding exposure in both developed and emerging markets, and spreading investments across multiple sectors such as technology, retail, mining, and construction. Diversification won’t remove risk, but it can reduce the impact of unpredictable events on your portfolio.

Investment horizon: Your investment horizon, how long you intend to invest before needing the money, is another factor within your control. Short-term time frames of six to eighteen months generally call for low-risk assets such as cash or money market investments, whereas longer-term horizons, such as saving for retirement, allow for greater exposure to growth assets like equities and property. Your time horizon should be reviewed regularly to ensure it remains aligned with your goals, especially as those goals change.

How much you invest: The amount you contribute towards your goals is linked to your income, expenses, and financial priorities, all of which you can influence to some degree. Your contribution rate should balance the need to save for the future with the desire to live comfortably in the present. Reviewing your portfolio regularly helps ensure your contributions remain aligned with your goals and affordability, and allows you to increase them when possible to benefit from compounding.

Tax efficiency: Tax cannot be avoided, but it can be managed. Structuring your portfolio to take advantage of available deductions and allowances reduces the drag of tax on your returns. Tax planning should consider how income tax, capital gains tax, and dividends withholding tax apply to your investments. Keep in mind that ignoring tax efficiency can erode returns over time and delay progress toward your objectives.

Fees: While fees may seem small in percentage terms, over time, they have a compounding effect on returns. Remember that paying higher fees does not guarantee better performance, so it’s important to understand exactly what you’re paying for and to insist on transparency. Make sure your fees are reasonable and that you are receiving fair value in return.

Emotions: Of all the factors investors can control, emotions are the most difficult to master. As Warren Buffett famously said, “Only when you combine sound intellect with emotional discipline do you get rational behaviour.” Fear, greed, and impatience can lead to poor decisions such as selling during a downturn or chasing short-term gains. While you cannot control market volatility, you can control your response by staying invested, avoiding rash decisions, and focusing on your long-term plan.

Professional advice: Choosing the right financial planner is one of the most important investment decisions you can make. Unless you are a qualified investment professional, managing your portfolio, asset allocation, rebalancing, and tax planning can be complex and time-consuming. Partnering with an independent advisor provides ongoing access to expertise and objective advice, helping you make informed decisions in line with your goals.

Markets will always be unpredictable, but your investment behaviour, decisions, and discipline are firmly within your control. By setting clear goals, structuring your asset allocation, diversifying appropriately, aligning your time horizon, managing contributions, improving tax efficiency, controlling fees, mastering your emotions, and seeking sound advice, you can build a resilient investment strategy capable of withstanding market turbulence. In the long run, mastering what you can control is one of the most reliable paths to investment success.

* Odendaal is a certified financial planner at Crue Invest.

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