Discover why maintaining a long-term investment perspective is essential for navigating market volatility and achieving financial success, as expert Pearlene Govender shares insights on avoiding common pitfalls.
Image: Pexels
Markets are in turmoil right now – but they won’t stay like this forever. And instead of panicking, the smartest move for investors is to stay calm and ride out the storm. Many don’t, though… When volatility is high, many investors are tempted to move into or out of different market sectors.
It’s a classic investing mistake. Short-term repositioning or rebalancing driven by headlines, sentiment, or short-term performance is one of the most consistent destroyers of long-term returns.
Capital markets reward patience, not prediction. Over short time periods, markets are dominated by noise, and prices can move sharply for reasons that have little to do with long-term value creation.
Over longer time periods, the signal becomes clearer. Outcomes are determined by fundamentals, not by headlines. A long-term framework also improves decision-making during periods of uncertainty. When investors know that they are building toward a defined multi-year outcome, they are less likely to be emotionally impacted by daily volatility or macro headlines.
Frequent switching also disrupts the compounding effect. Long-term wealth creation depends on giving high-quality assets the time to generate returns. Switching into and out of sectors interrupts that process, shifting the focus from investment discipline to market timing. And market timing is something even experienced, long-tenured investors rarely get right.
Having said that, there is an important distinction between reactionary switching and deliberate reallocation. Strategic portfolio changes are warranted when the original investment thesis has structurally deteriorated, the risk characteristics no longer align with client objectives, a superior long-term opportunity arises, or portfolio diversification needs to be enhanced or restored.
It is important, however, that portfolio changes are thesis-driven and not short-term performance-driven. Selling out of a fund purely because it underperformed over a short time horizon often results in selling low and buying high. Strategic adjustments for these reasons can add value, but adjustments driven by emotional reactions usually detract value.
The best advice for any investor is to reset their focus to long-term, outcome-oriented investment. This requires shifting the anchor from short-term relative performance to real return objectives, capital preservation over cycles, risk-adjusted compounding, or meeting liabilities for future spending needs. Ultimately, we want to remove the psychological pressure to keep up with a benchmark that may not reflect the investor’s actual goals or risk tolerance. When investment success is defined by outcomes rather than rankings, portfolio discipline improves significantly.
Focusing on absolute returns resets the focus to long-term, outcome-oriented investing, free from benchmark pressures and market noise.
Over a full market cycle, discipline compounds value, and emotion erodes value. Benchmark-agnostic investing ‒ independent of benchmarks ‒ is not about avoiding volatility, but rather about refusing to let volatility dictate your behaviour. True discipline comes from a clear investment philosophy, a repeatable process, risk awareness, and alignment with client objectives. When portfolios are constructed around absolute objectives rather than relative to index weights, capital allocation becomes more intentional. Investors can avoid areas where risk is mispriced, remain patient when opportunities are scarce, and deploy capital when valuations are attractive.
Ultimately, the question is not whether a portfolio outperformed a benchmark this year, but rather whether it is on track to deliver the outcome the investor needs over a full market cycle. Time, discipline, and patience remain the most underappreciated sources of long-term outperformance.
*Govender is the head of long-only manager research at Sanlam Investments Multi-Manager.
PERSONAL FINANCE