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This is not the time to panic - Here are four things you HAVE to do for better investment returns

by , 18 February 2016

During this month I spent some time at the offices of one of our broker partners.

I met with asset managers, analysts and traders.

This definitely helped me keep in touch with the industry…

But it was also very insightful in another way…

While I was there the current market cor rection we're experiencing began.

Being in the midst of the market day in and day out you become less desensitized... A little correction... A crash... They become part of the job; simply things you learn to stomach.

But at the broker's off ice I experienced the other side of it… I saw f irst hand how emotional many investors became.

Clients were phoning in after having written off half their multi-million rand portfolios in a single week.

Investors were in a flat panic as markets and shares took a dip.

As I was sitting there, I was sensing one emotion.

FEAR.

In fact, with some of the people it almost sounded like they were LOOKING for reasons to feed their fear!

And today, my message to you is to avoid this irrational herd behaviour
 
If you don’t, you’ll also end up an investor writing off your portfolio because you’re in an emotional state…
 
It’s a fact that most investors spend the BULK of their time worrying about the news, a war in Nor th Korea, the END OF THE GOLD BULL RUN, ter rorist attacks in the US and more.
 
But there’s no use worrying about these things.
 
It’s your job as an investor to focus on the things inyour portfolio you can control.
 
While you can’t control exactly what the market is doing, what’s in the news or how fast your shares are going up here are the four things you can (and SHOULD) control:
 
1. Control your costs – Here I’m not just talking about picking a broker that offers you competitive costs. I’m also refer ring to keeping tabs on the hidden costs you incur. For instance, whenever you buy penny shares there’s a bid/offer spread to cross.
 
So for instance, a share is trading at 85c but the lowest offer to sell is 90c. If you buy it there you’ve just paid 5c extra to b uy it. That’s an additional 5.8% cost you racked up. Over a year those costs start becoming quite signif icant. Make sure you keep this cost as low as possible.
 
2. Make sure your asset allocation f its your risk prof ile – I keep coming across investors with HUGE chunks of their wealth invested ONLY in penny shares when they are, in fact, quite risk averse.
 
If this sounds like you, listen up, it could cost you dearly...
 
You see, when you invest too much money in highly volatile penny shares (when you actually need that money, or you can’t stomach the big daily moves we see in the shares) you’ll only end up selling the shares when you shouldn’t, just when they could be at the verge of a breakout.
 
Basically, what I’m saying is, if you’re 60, about to retire and you’re not an adrenalin junkie; don’t invest ALL of your cash in penny shares (in the mining sector). They are volatile and speculative.
 
In short, don’t BET your retirement money on penny shares.
 
What should you do?
 
Well, decide how much risk you are prepared to take on and what you can afford. Then allocate a fixed amount of money to penny shares. And take the rest of your cash and invest it in other, less volatile, less speculative investments.
 
You’ll still be able to get growth and upside from our fast growing share, but you’ll also sleep sounder at night.
 
3. Don’t pay too much in taxes – Remember, the prof its you make from investing and trading is taxable. Trading profits are taxable as income (under your marginal tax rate) and investing prof its are taxable as capital gains (33.33% of the prof its are taxed at your income tax rate, but there’s also a yearly exemption on this).

So make sure you understand what the tax implications are for your portfolio when you buy and sell shares.
 
If you’ve got a large portfolio and you don’t yet have a tax advisor I suggest you go and see one ASAP.
 
4. Time is central to profits when it comes to investing – We all want to make as much profit as possible in as little time as possible. I know that...
 
But you also need to remember, companies only report results twice a year. That means the major news flow that affects their prices to the upside is very infrequent.
 
So you have to realise, most profit opportunities need time to happen. If a share doesn’t perform within a month it doesn’t mean it’s a dud... The market could just be waiting for results to come out. In the same breath I need to add that there’s an opportunity cost to holding on to a share for too long as you could be using your money for better gains elsewhere. So when you do make a call that a share is going nowhere slowly don’t hesitate to get rid of it and move on...
 
If you’ve looked at these four factors you’ve done all you can to make sure your portfolio make money.
 
If the analysis is sound it means you now need to wait for the company’s CEO and management to make the business work, do a turnaround or possible acquisition and increase profits. When that happens the company’s share price will go up.
 
Irrespective of what the market is doing.
 
But this can only happen if you sit back, relax and avoid panic selling...



This is not the time to panic - Here are four things you HAVE to do for better investment returns
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