Durban - Consumers face tough economic times with a two-year-long fight against Covid-19 and war-induced fuel hikes to investors trying to understand the concerns of global recession or the struggle South Africans face with Eskom.
“Considering these, you may well think the safest place for your money is in a shoebox under the bed,” said chief investment officer at PSG Wealth, Adriaan Pask.
“However, no matter how volatile markets get, the shoebox is never an option.”
Pask shares six tips on investing and saving during turbulent times.
Tip #1: Understand the arena
When you’re in a tough situation, it’s more simple to view the past with rose-coloured glasses and people tend to forget that markets don’t move without any dips.
“There is an inherent cyclicality to markets as they blow hot and cold. More often than not, today’s winners will be tomorrow’s losers, and vice versa. Not all asset classes move in union, making it a rarity for all portfolio assets to underperform simultaneously,” Pask said.
Tip #2: Be vigilant
According to Pask, a golden lining to market drawdowns is that entry points become more attractive as well as affordable and as markets are cyclical in nature, the bounce-back is inevitable.
Pask said that Graph 1 shows the last three major recessions/market drawdowns for the FTSE/JSE All Share Index (ALSI) and the S&P 500.
“Interestingly, the bounce-backs are significantly longer than the declines. To make the most of the recovery, you need to already be in position when the market turns.”
Graph 2 shows the best 15 days since the pandemic fall, and if you missed those, you would definitely have suffered a serious loss.
Pask said that investors need to be vigilant about what they choose to invest in.
“Just because a company is cheap that does not mean it’s a good investment.”
Tip #3 Act with calm
Don’t start to panic when you see the sea-saw of markets.
According to Pask, impulsive financial decisions can destroy the value you have been building.
“When taking financial action, you should do so rationally, logically and calmly. This is where a financial adviser plays a critical role.”
Tip #4 Stick to the plan
Pask said that the biggest risk to any savings plan is not having enough money when you reach your end goal.
Time and investment contributions are the two biggest factors that affect the end goal.
According to Pask, Table 1 illustrates the correlation between time in the market versus contributions.
“Assuming a set 6% interest rate, with the aim to retire at 65 and draw R20 000 a month for the next 20 years, an investor would need roughly R2.79 million at retirement.”
“An investor who starts putting away about R1 000 a month at the age of 20 will save around R1.34 million more than the person who starts saving R1 000 at age 30. Thus, to counter this loss, the 30-year-old will need to increase their monthly contribution to almost R2 000.”
Pask said that the lesson to understand from this is that less time spent in an investment product, the more money you will need to contribute later on to make up for the shortfall.
| Total amount needed for retirement at 65 to earn equivalent R20 000 pm for 20 years | R2 791 615.43 |
| Amount needed when starting to invest at: | |
| 20 years old | R1012.93 |
| 30 years old | R1959.43 |
| 40 years old | R4028.34 |
| 50 years old | R9599.16 |
| The additional return the investor gets when they: | |
| start at 20 years old instead of 30 years old | R1348489.92 |
| start at 30 years old instead of 40 years old | R1433744.54 |
| start at 40 years old instead of 50 years old | R1620098.72 |
Source: PSG wealth research team
Tip #5 Diversify
Pask said that if you construct a diversified portfolio that is tactically over- and under-weighted in specific areas, you can hedge against mistakes made in the market.
“In this way you manage the greater risks while still achieving your investment and savings goals.”
Tip #6 Don’t go solo
In times of stress and uncertainty, you need to know who you can turn to.
He said that a trusted financial adviser is qualified to create an investment plan suited to your specific needs, and can advise you on the best way forward (or remind you of your investment plan) during market turmoil.
“So, rest assured that you can upcycle and/or recycle your shoe boxes as desired, without tasking them with safekeeping your savings or investments,” Pask said.
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