An April report suggests that SA investors are more likely to switch investments due to poor performance, than because another fund performs well.
The COVID-19 pandemic has left investors with a lack of confidence in their investments, and as a result, a large number of people are making rushed decisions to move money from their investments and savings into risky funds.
This according to Momentum Investments, who said in an April report that South African’s are currently “nine times more likely to switch funds as a result of their current fund performing poorly, than they would be due to the possibility that another fund may perform exceptionally well”.
COVID-19 PANDEMIC PUTTING PRESSURE ON HOUSEHOLDS
Paul Nixon, head of Behavioural Finance at Momentum Investments, said in the report that pressures stemming from the COVID-19 pandemic and its impact on household finances have led investors to make some ill-advised decisions.
“This level of pressure also spills over into the savings and investment space,” he said.
“Negative returns on investments as a result of the tough economic landscape have created problems for the households that earn enough to save, and has resulted in more individuals accessing or changing their investments out of fear of not being able to cope.”
“From dumping stock to panic-buying toilet paper, the COVID-19 crisis has provided the perfect example of how fear and greed tend to influence us, and challenge the logic of our decision-making process.
HOW TO AVOID RISKY INVESTMENT SWITCHES
Nixon said that many South African investors have thrown out the playbook when it comes to ensuring the longevity of their investments, with fear over the performance of their portfolios resulting in panic switches that ultimately leaving them reeling.
“While most of us understand the science behind long term investments, it seems that in the face of a crisis, logic goes out the window and we do things that can severely hamper our financial wellbeing,” said Nixon.
Nixon said that in order to remain stable during these difficult financial times, investors need to keep their cool and avoid making rash decision with their hard-earned money.
“Understanding why we make the decisions we do – and overriding that detrimental ‘knee-jerk’ reaction that compels us to make rash decisions – remain critical to ensuring the long-term financial health of households,” he said.