Warning for South African investors

Although market volatility and potential tariffs may cause investors to panic, experts warn that they should avoid making rash decisions that contradict their financial plans.

Recently, Trump announced a 90-day pause on his tariffs for every country except China, which now faces tariffs of 245% on the import of goods into the United States, “as a result of its retaliatory actions”, according to the White House.

While other countries, which currently have a 10% tariff on imports to the United States, may have breathed a sigh of relief at the three-month pause, global markets are still extremely volatile.

Many experts have warned that the United States, and possibly a whole host of other countries, could be entering a recession soon due to ongoing trade wars and uncertainty.

As with many other global crises, investors are now considering how to protect their assets against a market crash, potentially damaging their finances in the process.

However, Old Mutual Wealth’s head of advice, Tiaan Herselman, explained that the key question South Africans should consider is whether their financial plan really requires a change.

If your financial plan is based on your goals, income, and expenses, that plan should guide decisions, not market headlines.

He added that any financial plan, whether it’s R100 or R100 million, boils down to four numbers: your capital, the return you can expect, the lifestyle you want your capital to support, and how long your money needs to last.

People tend to focus too much on returns, but there are many other important factors. These include adviser guidance, tax efficiency, asset allocation, income withdrawal strategy, and how you draw from retirement vs. liquid investments.

Stick to your plan

According to Herselman, the question to ask is whether anything has fundamentally changed in your life. If not, and you still need a diversified portfolio with a return of inflation plus 4–5%, short-term volatility shouldn’t really upset you.

The same thing happens every time there is a global financial crisis, for example, the 2008 crash of the Covid-19 pandemic. Every time, people get emotional about the markets and make completely avoidable mistakes.

He urged investors to examine their remaining investments in companies. If they believe those companies will still be around in five years and they are well diversified, they should return to their original plans.

If nothing’s fundamentally changed – for example, if there hasn’t been any major life change – there’s no reason to do anything at this point.

From 100 years of data, including both local and offshore equities, Herselman said that it is clear that markets have always bounced back.

There’s never been a dip where every company failed to grow or make a profit over time. “That is very unlikely,” he stressed.

If markets dip 10% to 15% and you’re in a well-diversified portfolio, not gambling on one company, cryptocurrency, or gold, then having some spare cash could be an opportunity to buy.

“Our view has always been: buy when markets are low, and rather sell when they are high,” he said. But if you’re in it for the long term, there’s no reason to act.

Herselman explained that it is also always good to check in regularly with your financial adviser, since they have the skills, economic knowledge, and objectivity that many individual investors may lack.

“They are the custodian of your wealth,” he explained. They are not only monitoring what the markets are doing, but they are also looking at all of the elements of your financial plan.

According to Herselman, the worst thing Old Mutual saw in 2020 was how many direct investors moved into cash, then missed one of the best years in 2021.