INVESTORS should expand their investment horizon to increase the chances of getting higher income, especially during times of crises when markets are highly volatile.
“The global market turmoil triggered by the pandemic has underscored the view that as investment horizon increases, the chances of earning positive returns also increase as more time helps smooth out the volatility of returns,” Manulife Investment Management and Trust Corp. (Manulife IM Philippines) said in a note on Wednesday.
Its study showed a 10-year investment horizon for equities in Philippine Stock Exchange index (PSEi) will likely yield a 100% positive return, better than the 94% rate for a five-year duration and the 68% for one year.
Manulife IM Philippines said in the past, equity markets generally posted a sharp rebound after crisis-induced sell-offs, as observed in markets in the Philippines, the United States, and Hong Kong/China, which have posted returns of 39%, 75% and 56%, respectively, a year after hitting their bottoms in March 2020.
“This market behavior was repeated in 2020 when the COVID-19 pandemic began to take center stage… Investors who stayed invested and even added to their investments in these markets made the correct and profitable decisions,” it said.
Aside from investing for a longer term, Manulife IM Philippines said players should also consider applying the cost averaging strategy, where they invest regularly to manage their risks, especially for those who were not able to catch the bottom of the market.
“Catching the bottom is not crucial in generating good returns if investors adopt regular investing or cost averaging. It is a proven investment strategy that can mitigate investors’ behavioral biases, such as being too cautious when prices are low and being too greedy when prices are high, and also enable them to ride out market volatility in a more proactive way,” it said.
Market volatility will likely ease amid an expected slowdown in inflation and improving economic data, Paul Lu, the head of Manulife IM Philippines’ wealth solutions division, said in a Zoom interview last week.
He said they expect a strong rebound in the first phase of countries’ economic recovery as they try to reopen more sectors. However, sustaining this will depend largely on the pace of vaccination rollouts.
Inflation, meanwhile, will gradually become less of a concern for investors as it is expected to slow down for the rest of the year.
“Towards the second half of the year, we think that the market environment will be better for investors. But since it’s a volatile market, we want to encourage investors to consider investing during these volatile times. We encourage them to stay calm and think long term,” Mr. Lu said. — Beatrice M. Laforga