But its impact on our economy is also a matter of concern. How can you prepare yourself and make calm, collected decisions amid a rising sense of global panic? In this article by Sanlam Reality, Sanlam’s experts share their tips:
How is the virus affecting my fund performance?
The COVID-19 virus has caused most equity/stock markets across the world to drop dramatically, says Gielie De Swardt, Head: Retail Distribution at Sanlam Investments. In times of panic, investors tend to disinvest in an attempt to keep their money ‘safe’ and to prevent values from dropping further. But mass disinvestment drives down stock market prices even further.
Is your money safe?
Sanlam, as a large, established financial institution, has protected and built wealth for their customers for over 100 years, through times of prosperity and adversity. Adds De Swardt: “Our business is in no danger of closing down. Your money is safe from the point of view that we are constantly monitoring and managing your investments. Your money will not ‘disappear’. Depending on the fund you are invested in, this market crash may mean a temporary decline in value, though. In a kneejerk reaction to negative events, such as the coronavirus, market prices often fall rapidly, but return to their original value in the medium to long term.”
For example, in the Global Financial Crisis of 2008, markets across the world were hit hard. The South African stock market reacted severely. But, by mid-November 2009 (14 months later), it was fully recovered from its lows.
How you should respond?
Speak to your financial planner and although it’s hard to do, avoid financial decisions based on emotion.
We’re emotional beings, says Roenica Tyson, Investment Product Manager at Glacier by Sanlam, and we work hard to earn our money. Naturally, volatile markets can cause panic, especially when we see the value of our investments falling. But this is not the time to panic nor the time to make emotional decisions. No-one can be certain about what markets will do in the future or what returns will be like for various asset classes (property, equity, bonds and cash), but what one can be certain of is that volatility is perennial. In these uncertain times, investors are faced with a very important decision – whether to stay invested in the markets and bear the brunt of the tough economic climate, or rather to switch to alternative investments such as cash or bonds. It’s worth noting that, in general, periods of economic decline are often followed by a high inflation environment, which can render cash a poor investment. Stick to your long-term investment plan, speak to your trusted financial planner and avoid making rash decisions.
Switching now may cost you in the long run
“Because it’s practically impossible to predict when to switch, it is highly likely that investors will miss some of the best days in the market. If you miss even a few of the best days, it can have a lasting impact on your portfolio returns,” says Shawn Phillips, Research & Investment Analyst at Glacier by Sanlam. Leave the short-term investment decisions for the fund managers, who know when to buy (often when stocks are below their long-term fundamental value) and when to sell.
Adds De Swardt: “The markets have already fallen hard. Disinvesting now would lock in your losses. Remember, these losses are temporary and eventually markets should return to ‘normal’. It’s been proven that more money has been lost by investors switching out of unit trust funds than by the markets themselves when prices fall. This is because investors often sell out of a fund at the wrong time and then miss out on the eventual recovery in prices.”
Follow these best-practice principles:
• Don’t try to time the market.
• Don’t make emotional decisions based on short-term uncertainty.
• Remember that, on average, growth assets will provide a better return over the long term (a minimum of five years, ideally 10).
• Understand your long-term investment plan and stick to it.
• Be disciplined and stay invested.
Enlist the advice and assistance of a licenced financial adviser to co-create an investment plan that is underpinned by your financial needs and risk appetite.
Still worried? Speak to an expert financial planner who is best placed to advise you based on your personal portfolio, needs and risk. Click here to set up a meeting, which can be via phone call.