Why Long-Term Investments Should Not Be Judged by Short-Term Performance

Wessel Vermaas, CA(SA), CFP®, M.Com (Tax)  ·  Managing Director, ICON Financial Advisors

One of the biggest mistakes investors can make is to judge a long-term investment portfolio based on its performance over a few months.

A long-term portfolio is designed with exposure to growth assets such as shares (equities) and listed property. These asset classes have historically produced the best long-term returns, but they do not grow in a straight line. Periods of strong growth are inevitably interrupted by market declines caused by economic uncertainty, geopolitical events, interest rate changes, or other short-term factors.

Market volatility is therefore not a sign that your investment strategy is failing—it is a normal and expected part of long-term investing.

When the value of your portfolio declines, it is important to remember that you still own exactly the same number of units in the underlying investment funds. The market price of those units may be temporarily lower, but unless you sell them, your investment has not been permanently impaired.

History has consistently shown that markets recover over time. As markets recover, the value of those same units also recovers. Investors who remain disciplined and stay invested are typically rewarded when the recovery occurs.

Changing your portfolio simply because markets have fallen often has the opposite effect of what you are trying to achieve. Selling after a decline locks in temporary losses and may cause you to miss the subsequent recovery, permanently destroying value that could otherwise have been regained.

Successful long-term investing requires patience, discipline, and confidence in a well-constructed investment strategy. Your portfolio was built to achieve your long-term financial objectives—not to avoid every short-term market fluctuation.

A lesson from COVID-19

The COVID-19 pandemic provided one of the clearest examples of why long-term investors should remain disciplined during periods of market uncertainty.

When global markets declined sharply in early 2020, many investors were tempted to switch to more conservative investments or withdraw their money altogether. Those who did so often locked in their losses and missed the strong market recovery that followed.

Investors who remained invested, however, continued to own the same number of units in their underlying funds. As markets recovered, the value of those units recovered as well, rewarding those who stayed committed to their long-term investment strategy.

This experience reinforces an important investment principle: short-term market declines are a normal part of investing in growth assets. While market movements can be uncomfortable, history has repeatedly shown that patient investors who remain invested through periods of volatility are more likely to achieve superior long-term returns than those who attempt to time the market.

COVID-19 was a powerful reminder that successful investing is not about avoiding market downturns, but about remaining invested long enough to benefit from the subsequent recovery.

It is not about timing the market, but about time in the market.

Remaining invested through both good and difficult periods has consistently been one of the most important contributors to long-term investment success.

This article is provided for general information and does not constitute financial advice. Past performance is not indicative of future results. Please consult your financial adviser before making any investment decision. ICON Financial Advisors (Pty) Ltd is an authorised financial services provider, FSP 53850.