With the current financial market outlook, what should I be focusing on to ensure my stock investment is protected over the next decade?
Name withheld
Jaanre Muller, Wealth Manager at PSG Hermanus Portfolio Management & Stockbroking, responds: An important factor that you need to consider before investing is that an investment in stock (share) markets is a high-risk investment. Stock markets are volatile in nature and typically you can expect to see a sharp pullback every five to 10 years. You need a long-term investment horizon of seven years and longer when committing your savings to this type of investment. And you need to stay committed to your investment plan when stock markets fall – this is the relationship between risk and return at work.
There are a few ways in which you can counteract the risk inherent to stock markets. Ensure that you have adequate diversification within your stock portfolio. This means having exposure to a basket of companies that operate in different parts of the world, but also in different economic sectors. Examples are resources, consumer goods and services, industrials and financials. Furthermore, stick to the shares of high-quality companies where the management team have a proven long-term track record and where you understand the company’s business model. A stock investment needs continuous evaluation and monitoring, so make sure you stay abreast of economic and financial changes that may affect the stocks in your portfolio.
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