We all find ourselves in uncertain places during our lives or become overwhelmed by negative sentiment during times of financial market instability. In South Africa it is particularly easy to get caught up in negative sentiment with our failing State owned Enterprises and load shedding. The tragedy is that so many people panic, cancel retirement savings, try to move money offshore or into alternative investments like crypto currencies and many other investments that are peddled by unscrupulous people.
The simple fact of the matter is that, staying invested is the best course if your funds are managed by a reputable financial institution or you are advised by a certified fanancial adviser.
Financial market instability, staying the course
Financial instability is a temporary bump in the road and the worst possible thing that you can do is panic. The financial institutions are well aware that many people go through these phases in their lives, be it losing a job or getting caught up in negative sentiment and are there to help you through it. Take advantage of the free financial advice offered by completing the financial advice request and get the right, unbiased advice that will guide you through your financial problems or uncertainty.
If at all possible, maximise your tax efficiency and minimise investment reductions.
What to do if you lose your income
The very fiurst thing you need to do is pick up the phone and talk to your financial advisor or institution or get some free advice from a certified financial planner. You need to know what the implications are of reducing payments, cancelling policies or investments and of falling into arrears with your investment payments.
If approached correctly, these issues can be dealt with in an efficient manner and with the least possible cost but you need to know what the implications are. Request Free financial and Insurance Advice by using the contact form provided and start getting your financial affairs in order, it will be the best 10 minutes you ever spent.
Never cancel any type of insurance without considering all of the implications. Cancelling car insurance of life insurance can leave you extremely vulnerable and in the event of an accident or severe illness, could leave you in a position that is very difficuly to comer back from.
It is possible to reduce car insurance premiums by electing to take up a higher excess or by insuring 3rd party fire and theft only. In life insurance, there are also ways of trimming your premium but you must speak to a financial advisor.
Markets making you panicky?
Every large financial services company in the World employs highly skilled analysts and portfolio managers who have the historical records of the performance of the markets from the very first day that financial records were kept. These analysts create very sophisticated financial models that allow them to run scenarios through in or der to predict returns. While returns are not set in stone, the risk profiles can be very effectively mapped and with a fairly high amount of certainty, advice can be given
The one thing that gives any portfolio a chance of success is “time” . Modelling over long perios, through the highs and lows allows financial analysts to better predict the chances of a portfolio producing an expected return. For example, investing in a single share is very risky unless you are 100% certain that the company is going to issue a statement which will increase the value of the share. (That would however be insider trading and is criminally punishable) By the same token, investing in a single portfolio is risky and one should diversify your investments into a range of portfolios which have a similar risk structure.
If, for example you are in your twenties or thirties, your portfolio would likely include a higher element of risk than someone in their fifties. Even high risk investment portfolios perform better and with some predictability over a longer period. These funds are managed by highly skilled people who crunch the numbers all day long, do financial modelling, track the performance fo the fund managers and adjust the holding of each portfolio accordingly.
Trying to predict what the makets will do
In all the years that we have had financial markets, there has been financial market instability and no-one has been able to predicty what will happen with any great certainty. From time to time a person may get lucky but that is more the exception thn the rule. Let us take this as an example.
If you missed the top 10 days of market performance in the 20 year period between 1999 and 2018, your return would have been halved as opposed to having stayed invested. This is just a simple example of a 20 days missed opportunity over 20 years. You can imagine if your predictions over 20 years missed the top 40 or 60 days.
Below is the table showing that a $10 000 investment left invested for 20 years would be worth $29 845 and what it would look like if you missed best number of days shown.
| JANUARY 1999 TO DECEMBER 2018 | US$ VALUE | PERFORMANCE |
|---|---|---|
| Stayed invested (S&P 500 index) | $29,845 | 5.62% |
| Missed 10 best days | $14,895 | 2.01% |
| Missed 20 best days | $9,359 | -.33% |
| Missed 30 best days | $6,213 | -2.35% |
| Missed 40 best days | $4,241 | -4.2% |
| Missed 50 best days | $2,985 | -5.87% |
| Missed 60 best days | $2,144 | -7.41% |
This is very clear evidence that you should stay invested and not try to predict what the markets will do. Read the full article
The bottom line is, stay invested through thick and thin if at all possible. Of course there are times when finding the money becomes impossible and sacrifices need to be made, but before you do this, let one of our certified financial planner partners, help you decide what the best course of action is.
