Wealth management

23 February 2023

Investing during a market recovery

The Ghanaian stock market saw a decent recovery in 2021 after recording negative returns in 4 of the previous 5 years, however 2022 was another challenging year. The Ghana Fixed Income Market, on the other hand saw a highly volatile 2022, with the year culminating in lower bond values and the Domestic Debt Exchange Programme. With the extraordinary challenges of 2022 behind us, some investors are looking forward to 2023 and beyond with renewed optimism. However, for those seeking to invest during this potential market recovery, there are a few things you need to consider, and we will discuss them in this post.

 

Chasing returns is one of the biggest mistakes any investor can make because of how quickly trends can change. It is very easy to lose sight of the larger systematic risk that still plagues the market if returns are the only metric you are focusing on. Instead, you should look for other signs of an extended recovery such as GDP growth and growth in bank lending. Failure to consider the broad economic conditions could lead to a wrong conclusion about the strength of the recovery or if there is even a recovery to speak of.

 

Secondly, the fact that the market may be poised to recover does not mean you can simply buy now and go along for the ride. In particular for equities, you should seek to purchase stocks of companies which you believe will do well in the long-term, regardless of what general market conditions will look like going forward. Seasoned investors track metrics such as profitability, liquidity, market share, industry growth and dividend yield in evaluating a company’s long-term prospects. IC’s Insights provides you with extensive market information to help you make informed investment decisions.

 

A risk management plan should always be part of your investment strategy and it is even more important when you are investing during a market recovery. Such a plan should include how you will meet emergencies that may come up while your funds are still invested, what level of losses are acceptable and what you will do if you realise the recovery has stalled. This plan will keep you from suffering significant losses when the winds change. Consider setting up a low-risk, easily accessible emergency cash fund, such as the IC Liquidity Fund, and speak with an IC adviser so you can determine your plan for tracking and perhaps exiting the market should the need arise.

 

Finally, it is good to keep in mind that when the market does not move your way or returns do not materialise as quickly as you expected, it does not mean that you have made the wrong investment decision. You need to be patient and understand that investing in the capital markets yields the best results over the long-term. Invest for the long-term with the appropriate risk management safeguards and you will most likely see positive results.

 

If you want to talk to a professional about the best way to take advantage of a market in recovery, call IC today on +233 (0) 308250051 or email clientservice@ic.africa to get started.

 

Thank you for reading.