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With every passing day more and more reports are published about the economic impact of strategies by governments everywhere to slow down Covid-19 infections and deaths. In many countries, South Africa included, protest action against lockdown rules is intensifying. Amidst all this stock markets and currencies continue to fluctuate and economic decision makers are implementing fiscal and monetary policy changes – including lowering of interest rates and stimulus packages – to support ailing economies.
The events of recent months have been described as ‘unprecedented’ and market commentators referred to them as two black swan occurrences (Covid-19 and dramatic fall of oil price) that no-one had foreseen. The next wave of commentary now suggest that the world will be changed forever. The New York Times reported on 17 April 2020 that “when big convulsive economic events happen, the implications tend to take years to play out, and spiral in unpredictable directions. Former US Secretary of State, Henry Kissinger, wrote on 3 April 2020 “the reality is the world will never be the same after the coronavirus. To argue now about the past only makes it harder to do what has to be done”.
All this has made investors – even those who have been investing for decades and have seen and survived previous market upheavals – nervous and many are uncertain. So, how to proceed?
Five Certified Financial Planner® professionals at Brenthurst Wealth respond.
Given this uncertainty and unpredictability, what would be the single key piece of advice to investors?
Brian Butchart: Events such as these are impossible to forecast. Recent developments have the potential to grip us with fear, both in our personal lives and in our financial decisions. It is however a time to remain calm, find strength and seek the skills and wisdom in the right places.
Understanding asset allocation, risk, and time horizons are crucial to navigating sound financial decisions in uncertain times. If you do not possess these skills yourself, employ the services of a professional.
The risk of losing capital is not necessarily market volatility, but how we as investors re-act towards market volatility.
Desmond Benecke: Do not act on impulse. Employ the services of a qualified, experienced advisor who will analyse the investor’s assets and liabilities, income, risk profile and current asset allocation to recommend possible changes, if required, and do so gradually. Care should be taken to not realise losses as a result in asset values declining.
Sonia du Plessis: No use taking an “ostrich-with his head in the sand” approach, now more than ever investors need to know exactly what is going on in their financial affairs. It is, however, very dangerous to make changes to investments based on the current newspaper headlines, which most likely will result in emotion driven decisions. The biggest risk investors are facing is not markets but how they re-act to market news. Investors who have balanced, diversified portfolios should stay invested.
Magnus Heystek: The biggest (money) element post-lockdown life to act on will be the importance and benefit of saving for the proverbial rainy day (that rainy day is HERE, and another will come in the future). The lockdown is the perfect time to review every single aspect of personal and household financial circumstances. Budgets, investments, insurance, life policies, etc. Review what is earned, what taxes are payable, what current savings status is, regular expenses like mortgage payments, utility bills, car payments. The process must include a review of investment portfolios and to assess whether the asset allocation matches up to the risk profile. Now is not the time to invest aggressively, simply based on the volatility that local and offshore markets are experiencing.
Suzean Haumann: My advice at this stage is to not make any major changes within investment portfolios. Values may be down, but a loss is only a loss when you sell out at the wrong time. Instead I suggest re-looking at the bigger financial plan and take this opportunity to align different areas of a plan to being more “financially smart”. A lot of people are suddenly faced with the reality of not being able to earn an income during these uncertain times – especially lockdown. The importance of an emergency fund has never been more pressing. One should assess the way you spend your money as well as what accessible savings you have. Ensuring an emergency savings fund is adequate and in existence is vital.
A sound financial strategy should include multiple financial planning disciplines and not focus on investing and returns in isolation.
For a comprehensive financial planning strategy including asset allocation, risk planning, estate planning, tax planning, offshore investment and more, read here.
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