The arrival of the Coronavirus (Covid-19) in South Africa

The arrival of the Coronavirus (Covid-19) in South Africa last week and the subsequent confirmation of seven positive cases has amplified the anxieties of local investors saving towards their retirement.


While the outbreak is certainly unsettling, South Africans must resist the urge to panic when it comes to their investments. This is according to Andrew Davison, Head of Advice of Old Mutual Corporate Consultants, who says, “As difficult as this may seem, the  best move an investor can make is to make no move. Markets are in turmoil at the moment, fuelled by fear and uncertainty over the potential impact of the spread of the virus”.


“Without downplaying the impact of COVID-19, we must remember that market volatility is part and parcel of investing in equity markets. Invariably, by the time most investors start being concerned and consider switching or changing their investments, the potential impact would have already been priced in as asset prices have fallen. Selling at these lower prices means investors lock in any losses and prevent their investments from recovering when prices bounce back,” Davison points out.


He says that numerous global companies have warned of significant supply disruptions to goods and parts, particularly those manufactured in China. Quarantines, disruptions to travel and the cancellation or postponement of several major events have added to the turmoil, as has the recent announcement by Saudi Arabia of a drop in the price of oil. Owners of shopping centres, already on the backfoot due to online shopping, have seen a dramatic fall in visitors to their centres. The list of impacted industries is long.  


As with most crises, there are some winners such as online food delivery businesses, makers of face masks and hand sanitisers and owners of medical facilities, to name a few.


Davison adds that investors who hope to withdraw now to the relative safety of defensive assets will be doing more damage than good to their portfolios’ long-term returns.  


“The best course of action continues to be to sit tight and ride out the volatility. This view is backed by historical data that shows markets rising and falling all the time, while steadily and resolutely maintaining an upward trend in the long term,” says Davison.


Staying the course, especially in the face of heightened risk, isn’t easy. Davison has  compiled a few valuable tips to help long-term investors stay on track.


Focus on the long term

Shares go up and down in the short term, but in the long term, they do gradually climb upwards despite the risks and unforeseen events that occur. The JSE All-Share Index has climbed ever higher over the past 60 years despite numerous local and global events that have threatened to disrupt the journey for investors.


You need ‘growth assets’

Balanced funds have exposure to assets like equities because of their greater growth potential. That potential growth comes with some risk, though, in the form of short-term volatility . This is simply how markets work, which is a lesson that retail investors need to keep in mind.


You can’t time the markets

No matter how many times this truth is repeated, investors invariably try to do so anyway. They might do it successfully once or twice, but getting it right consistently is another matter altogether. Predicting what will happen to investments and prices in the future is near impossible, as is knowing when to switch out of the stock market and when to get back in early enough to share in the full upside benefits.


Losses are simply part of investing

The worst response one can have to negative returns in the market is to panic. Learning to ignore this is one of the most valuable skills a long-term investor can acquire. Sometimes, simply not looking at monthly statements is the most effective way to remain focused on long-term goals.


Know your time horizon

A common fallacy is that the retirement savings horizon ends at retirement. The reality, however, is that one’s time horizon exists for the rest of their life. This means that pensioners can maintain a longer-term view on their portfolio. Most retirees in South Africa transfer their retirement savings into a living annuity so they remain invested while drawing an income every month from their assets.


Cash may seem safe, but it’s the riskiest investment when it comes to retirement savings

Risk-averse investors may gain psychological comfort from steering clear of equity market volatility by moving into cash. While possibly considered ‘safer’, cash destroys value because there are too few actual times that cash delivers better returns than stocks.


Speak to your financial adviser or click here to Find an Adviser.




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