PSG’s golden rules for investing

While investing can be intimidating, experts advise that by implementing a few key strategies and avoiding some common mistakes, people can build a successful portfolio.

Wendy Myers, Head of Securities at PSG, stressed that, as an investor, the goal isn’t just about boosting returns. It’s about doing so without torpedoing your portfolio in the process.

“That means resisting the temptation to throw everything into one hot stock just because everyone in your neighbourhood WhatsApp group is doing it,” Myers said.

“There are three foundational principles I always come back to: diversification, knowing your risk tolerance and harnessing the power of compounding.”

While diversification may seem like an obvious strategy, Myers explained that investors often implement it poorly. This is because

“Real diversification means spreading your investments across asset classes, sectors and geographies – not just picking five tech stocks and calling it a day.”

When done correctly, diversification helps reduce risk and improve long-term performance. “Importantly, it cushions your portfolio when one sector underperforms or global conditions shift.”

Secondly, Myers explained that investors need to understand their risk appetite before they start building a portfolio.

“You need to know how much volatility you can live with – and, more importantly, how much you can lose without losing sleep.”

To determine this, investors must be honest about their investment goals and time horizons, as well as the amount they are willing to invest.

“I’ve always been a conservative investor. When Sasol was trading at two times earnings, I knew the upside was compelling – but I also knew I could only tolerate a 30% exposure from my cash buffer.”

“That wasn’t part of my retirement or longer-term investments. The key was being comfortable with the risk. If Sasol had dropped another 10%, I’d have still been able to sleep at night. That, to me, is how you align emotion with logic.”

According to Myers, leveraging compounding and avoiding excessive interference with your portfolio are also key strategies that investors should keep in mind.

“Compounding isn’t just about interest. When you reinvest dividends and avoid unnecessary withdrawals, the effect on your portfolio over time can be remarkable. Too many investors forget this, especially when tempted to chase short-term gains.”

“Rebalancing is another area where restraint pays off. Do it, yes – but do it infrequently and with small, calculated adjustments.”

She explained that if a stock’s allocation has swelled well beyond its original weight in your portfolio, consider trimming it back and reallocating it to something more attractive.

Common mistakes

Apart from these three strategies, avoiding common mistakes is also an essential part in seeing success as an investor.

“Return-chasing strategies often lead to costly mistakes,” Myers said. “I’ve seen too many investors go all-in on one share because of recent performance, only for the stock to crash – or flatline.”

“The tech sector is a perfect example. Last year’s darlings have come down materially, and investors who didn’t diversify or who doubled down at the top are feeling the pain.”

Myers explained that investors should also avoid the trap of relying on past performance as an indicator of future returns.

“Share prices are influenced by countless factors – economic policy shifts, geopolitical events and sentiment. A new administration in the United States can change global market dynamics overnight.”

Your investment strategy also depends on your age, which determines your risk appetite. While making investments that are too risky is a mistake, making investments that are too risk-averse can be an equally bad mistake.

Myers said that young investors, in particular, often err on the side of caution. However, avoiding equities altogether when you have a long-term horizon can seriously limit your wealth-building potential.

“At the same time, mature investors should rebalance for lower volatility – ideally through a mix of equities, ETFs, bonds and cash.”

She added that excessive trading is another red flag. Constant buying and selling racks up costs and often stems from emotional, not rational, decision-making.

“Similarly, reacting to headlines or market swings – like panic-selling after a dip – rarely ends well. I’ve seen investors exit positions like Renergen at the bottom, only for a buyout offer to send the price up 30 to 40% in days.”

“Some investors also fall into the trap of monitoring their portfolios too frequently. Constantly checking prices or reacting to every market dip often leads to unproductive tinkering or emotional trades.”

Most financial advisers recommend an annual review – which is generally enough unless your financial situation changes meaningfully.

Myers said stop-loss orders fall into a similar category. While they seem worthwhile on paper – protecting the downside by triggering an automatic sale – they can backfire.

“If a stock drops temporarily, your position might be closed out before a recovery, leaving you to miss out on a rebound while still incurring costs and tax liabilities.”

“In most cases, selling decisions should be deliberate and informed by your long-term strategy, not automated reactions.”

Finally, Myers stressed the importance of consulting with a trusted adviser when making investment decisions.

“Too many investors think they can go it alone – they’ve watched a few YouTube videos, downloaded a sleek trading app, and they’re ready to build a fortune. But successful investing requires more than enthusiasm.”

A qualified adviser is an invaluable financial partner for those without the financial know-how or commitment to in-depth daily research.

“They consider your full balance sheet, your estate planning needs, and your long-term goals. They help you stay disciplined and avoid knee-jerk decisions.”

“Most importantly, they walk the journey with you – helping you invest with intention so that when the time comes to retire, you can do so comfortably.”