Kenosi Magosha: Head of Client Solutions at Sanlam Savings
After being impacted by global turmoil previously, the markets have always recovered and will do so again – it may just take some time. It’s now more important than ever that you remain level-headed and stay the course on your savings and investment journeys. Making changes to your investment strategy at this stage could result in you not benefiting from investment returns when the market turns upwards again. Let compound interest and time work their magic on your money, without short-term, emotion-led interruptions.
That said, if your goals or needs have changed, it’s good to review your savings and investment plan with your financial planner – something you should ideally do regularly, or as your needs change, in any case.
Please consult with a financial planner before you take any action regarding your savings and investments
The best way to take advantage of volatile markets is with a recurring contribution product, because with lower average unit prices over a period of time when the market is down, you will be able to buy more units compared to when the market is up. This is referred to as rand-cost averaging. Keep making recurring payments to benefit from rand-cost averaging to really get ahead when things improve again.
It’s important not to make hasty decisions based on fear. Switching to a lower risk portfolio can lead to ‘locking in losses’. Remember, cashing in at a low point makes a paper loss a real loss. Whatever is happening in the markets, you need an investment strategy that’s aligned with your goals, your appetite for risk, and how long you have until you hope to retire. These are all personal and unique to you. The best way to plan for this, review this and to deal with uncertainty is through proper financial planning, together with patience and persistence with your investment strategy.
Making emotional decisions, based on short-term market fluctuations, may result in more harm than good and destroy the long-term value to your savings.
Remember: saving for retirement is a long-term strategy requiring patience and persistence. The old saying ‘It’s not about timing the market, but about time in the market’ remains true.
If you’re invested in market-linked portfolios
Over the short term, you’ll probably experience negative returns. But don’t panic: history shows that markets recover over the medium to long term. History has also taught us that, in time, there will be recovery in the financial markets. Try to be patient; it’ll pay off.
If you’re invested in retirement funds
Retirement fund portfolios are spread across various asset classes, such as bonds, property, cash and international assets, to reduce underlying risk. Your retirement savings are also protected (but not guaranteed) by the limitations of exposure to asset classes enforced by Regulation 28 of the Pension Funds Act. This helps by diversifying your portfolio. The most important Regulation 28 asset class limits are as follows:
If you’re invested in a lifetime investment option, your money is gradually moved from high-risk portfolios to lower-risk portfolios 6 years before your normal retirement date. Lower-risk portfolios have less equity exposure, which reduces the impact of the falling markets.
By investing a lump sum or some of your salary each month, you can grow your money over time so that you can retire comfortably. No matter how much you need to or can afford to save, the most important thing is to stay committed to saving.
If you are retrenched or move jobs, you can maintain your retirement plan by moving it into a preservation fund. Resist the temptation to cash in your savings, as it will be very hard to make up for the value you’ll lose.
If you are retiring soon or are already retired, you need to draw a monthly income from your savings to maintain your lifestyle. You also need to manage your retirement savings to ensure it lasts throughout retirement.