Markets in turmoil - what should I do with my investments?

Markets are in turmoil due to factors like the coronavirus pandemic and low oil prices.

On top of that, experts are expecting the SA Reserve Bank to likely cut interest rates next week. This raises the question about what one should do with your savings and investments.

Fin24 reported on Friday that global markets were in rebound mode following Thurday's bloodbath which saw major stock exchanges suffer their worst losses in decades.

To move or not to move

As investors are seeing the value of their savings plummet, they wonder what to consider before moving their investments from one product to another.

Andrew Dittberner, chief investment officer at Old Mutual Wealth Private Client Securities, warns that, although it is often tempting to do so, jumping in and out of products based on short-term performance is the surest way to destroy capital in any portfolio. Volatility in capital markets is part and parcel of investing.

"Unless something has materially changed from an objective standpoint, there should be little need to switch between products as a result of short-term performance, or in and out of products based on market moves," he says.

Nashalin Portrag, head of Momentum FundsAtWork, says their research shows that some investors are costing themselves more than 2% per year, simply by making investment decisions to ease their emotional tension caused by markets.

"A market shock often causes investors to move to safer investment and more predictable returns, which may not necessarily be the most appropriate long-term investment strategy," says Portrag.

Regarding unit trusts, Janina Slawski, head of investments consulting at Alexander Forbes, says you should invest in ones that meet your long-term investment objectives.

"Only to the extent that there are fundamental changes do we expect market prices to remain depressed for an extended period," she says.

As for the approach to money market accounts, she says one should continue to invest as you would for the long term. It is very difficult to "time the market", and if you try to now by moving to money market accounts, you are likely to miss the market recoveries as they occur.
 
If you are drawing down from a living annuity, you should try to reduce the amount you are drawing as far as that is possible since these drawdowns do crystallise losses, and you will not be able to recover the negative returns on the monies you draw, she adds.

READ | Coronavirus and retirement savings: 5 things experts want you to think about

Market panic mistakes

Paul Bosman, investment analyst and fund manager at Granate Asset Management, says it is about what you truly own and whether you would like to continue owning it.

"Coronavirus is like a storm which hits a neighbourhood. Weak houses could be damaged, very weak houses could be destroyed but well-built houses are likely to survive," he explains.

Therefore, in terms of listed shares, he says that if a company has plenty of debt and you expect sustained reduced revenues, it might become hard for the business to pay its operating costs and service its debt. In such cases, it could be wise to sell.

"We don't think there are many such companies in SA at the moment, but this is more prominent in developed markets," he adds.

"If you have a good house - that is own shares in a good business with a strong balance sheet - selling in a storm tends to be a bad idea. In fact, it is often a good time to make an offer for the neighbour's house."

For Bosman there is an exception though: if somebody is offering you far more than your house is worth, despite the storm, you should still consider selling. Very few people are offering premium prices in SA at the moment, though.

Eric Low, head of business development at online investment platform PrimaryBid, says there is nothing wrong with re-allocating an investment portfolio (including raising cash) to ensure one's near-term financial needs are met, but wholesale panic selling often means that investors will be under-invested when the panic subsides and normalcy returns.

READ | Scam alert: Now hackers are using coronavirus panic to spread malware

Money in hand

If you have money on hand, is now a good time to invest in the market if you have a medium to long term horizon?

Dittberner says this is the question that everyone wants answered now, yet nobody has the answer.

Firstly, do you believe the price declines witnessed in recent weeks are proportional to the worsening fundamentals? Secondly, what were your views on markets prior to the onset of the volatility? Did you view markets as expensive, fairly valued, or attractively priced?

Lastly, will the coronavirus have a lasting impact on companies' ability to generate earnings and cash flows into perpetuity, or will this be transitory, with companies returning to business as usual once the virus is in the rear-view mirror?

According to Dittberner, in thinking about these three questions, one can arrive at a reasonable view as to whether you should be deploying excess cash or not.

In Portrag's view, given the current volatility and uncertainty investors with short-term time horizons should consider investing in more conservative portfolios and only investors with a long-term time horizons should consider investing in moderate or aggressive portfolios.  

"Investors, who are uncomfortable to invest all their money on hand as a lump sum investment, could consider investing smaller amounts over time. This will most likely help to reduce the impact of market movement on their money," he adds.

Grant Locke, head of robo-advisory firm OUTvest, says, if you stick to your investment plan and understand why you are invested in which asset classes, you will be able to sleep easier at night," he says.

Madalet Sessions, who heads up the multi-asset range at Denker Capital says the investment landscape changes every day as new information becomes available.

"The question for investors should not be 'what is the investment landscape?', but rather 'do I have the right plan to enable me to reach my investment goals?'" says Sessions.

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