It is very likely that you have lost money in the crash. After looking at your most recent statements, it would be correct to ask what your financial advisor is doing for you at this time.
Here are some questions to ask your advisor and points to consider before you make decisions about keeping or firing your advisor.
Did your advisor tell you to sell shares in the middle of the crash?
During the first big drop in the market, if your advisor told you to sell your shares or didn't try to dissuade when you said, "sell everything and move to cash" - you should seriously consider firing your advisor! It is impossible to predict the short term moves of the market, so selling all your shares during a big crash is always a bad idea.
A great advisor would know this and would have done everything possible to dissuade you from making this decision. A terrible advisor would have panicked with you and tried to get you to sell everything.
It is important to remember that markets always bounce off their lows, sometimes they bounce a bit before dropping again. You should not be tempted into short term thinking where you try to sell and then buy at the bottom and sell again after a recovery.
The market moves too quickly and too unpredictably to make decisions like this with any reliable prospect of success. In other words, you would be relying on luck to make money – never a good idea! Since the start of the crash, the JSE has dropped about 35% from the high to the low and then bounced more than 20% from the lows. It is entirely probable that the JSE will fall again (possibly a few times) before the eventual recovery.
I have similar views on the Rand. If your advisor is telling you to sell all your SA assets and to send the money offshore when the Rand is at R18.50 to R19.00 to the Dollar – FIRE YOUR ADVISOR. I have been told about a few “celebrity” commentators who are pushing this argument. It is important to remember this kind of commentator often is financially conflicted.
If you were to listen to this kind of advice, you would be persuaded to invest in that commentator’s offshore funds or in that person’s latest property scheme etc. Over time, you would probably lose money and the commentator would be buying another Villa in Mauritius or Malta.
A great advisor should be reminding you that the Rand does recover from the worst effects of a market crash and that you will get more opportunities to invest offshore in the future at much better exchange rates.
Were you prepared for the market losses?
Markets are volatile and your financial planning should take this into account (before you start investing) so that you don't sell investments at the worst times i.e. during a crash. Did your advisor warn you, before you started investing, that you could lose money? Were you told how much you could lose? Hopefully you were not surprised by the size of the crash nor by the losses on your portfolio? You should have been forewarned about the size of losses you could expect in a crash and therefore should not have been surprised by the amount you have lost in the last few weeks.
The market crash has been very rapid but certainly no bigger than previous big crashes. My main point is that it doesn't matter why markets crash, it is only important to know that they do crash every few years and a great advisor would have prepared you for WHEN a crash happens not IF it happens.
The most recent example of bad advice that I have seen is where advisors have been placing all their clients’ overseas investments in the US stock market without consideration for other countries or asset types. The US market was very expensive before the crash and it would have been expected of a good advisor that you would have had some money in other assets e.g. commodities, bonds, cash and non-US shares.
Not all of these assets would have protected you from losses but it was the right strategy to be diversified and not 100% invested in US shares.
What does your advisor not want you to ask?
Your advisor really doesn't want you to ask where the Rand is going and what it will do over the next few months. Good advisors will tell you that they don't know where the Rand is going in the short term. I believe the Rand is too weak and will recover BUT I’m not sure if it will take a few days, weeks or months.
What should your advisor be telling you now?
Your advisor should be in regular contact with you during these times. Most importantly, they should be checking in to see that you are not too panicked about your investments. Once they have established that you are healthy and in a good emotional state, they should encourage you not to monitor your investments too regularly. Watching the Rand, JSE or S&P500 on a daily basis is pointless and probably dangerous to your financial and mental health.
A good advisor might be suggesting that you use the big market drop to sell some of your older investments that are expensive in terms of fees to replace them with better cost but similar risk investments. Importantly, you should not sell your high-fee investments and then remain in cash, rather do a straight swap so that you give your money the chance to recover the losses generated by the crash.
Often the decision to do nothing in these times is best. A good advisor would have ensured that you were well positioned to weather the storm BEFORE the crash, that means you should probably relax now and focus on your health and your family.
Warren Ingram is a Director of Galileo Capital and hosts the HonestMoney Podcast.