MONEY CLINIC | My investment value is dropping. Should I withdraw or otherwise change it?

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A Fin24 reader wants to know how he should go about safeguarding his investments during the coronavirus pandemic. 

He writes:

My wife and I each have investments with Momentum Income Plus funds, which has a mix of low risk investments, unit trusts etc. This gives us easy access if we need money, with a reasonable ROI.

Right now, of course, there is no gain and the overall value is dropping. Is it better to withdraw the funds and put them in a bank with almost no interest just to safeguard the funds, or should we contact Momentum to change the funds to another type of investment that at least does not lose the capital?

Marlon Walters, Senior Investment Consultant at 10X Investments, answers:  

One of the most common investing mistakes is to sell in response to a sudden or dramatic downturn – and thus crystallise what had been until then just paper losses – only to be left on the sidelines, un-invested when markets recover. 

A paper loss, also known as an unrealised loss, is when the value of an asset or security drops below its original price, but the investment is not yet sold. A realised capital loss occurs when an investor sells an asset for a lower price than they initially paid for it, thereby realising the loss. 

The old saying, "It’s not about timing the market, but about time in the market", has been proved true over the years. Research shows that those who stay invested in a well-diversified portfolio over the long run will generally do better than those who try to profit from turning points in the market. 

Charles Ellis, founder of Greenwich Associates, makes an excellent point: "If the upward trajectory of stocks long-term is never surprising, why is it so difficult for investors to stick to a disciplined long-term investment plan?" Because, he says, "the short-term is always surprising". 

In conclusion, unless you have had a life-changing event that affects your finances, such as a change in your risk profile, objective or time horizon, it is usually best to stick to the original plan you put in place when you first made the investment.

Questions may be edited for brevity and clarity.

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