South Africa’s lockdown has proven to be a trying time financially over the past few months, with many facing reduced work hours, possible retrenchment, and uncertainty in their investment portfolios. But even amid this instability, there are still opportunities to not only maintain your investments, but to progress them.
"This is why expert advice has never been more important, and times like these necessitate speaking to your financial adviser. This could be the difference between loss, stagnation and even growth during this time of economic insecurity," says Liberty’s Chief Specialist: Advice Model Design, Henry van Deventer.
The effects of the pandemic on retirement annuities, insurance cover and how best to navigate current market conditions both locally and internationally are some of the concerns that consumers are grappling with, and understandably so.
Van Deventer concedes that while every individual's situation is unique, a more in-depth conversation with a financial adviser should be had. Van Deventer addresses some of the concerns:
Is now the time to take an insurance ‘premium holiday’ to focus on other investments?
What has to be considered when pausing or reducing insurance premiums is whether or not this is simply a short-term solution or genuinely helpful in maintaining your flow of income. On one hand, you can ease the strain of these monthly payments in times where cash flow is limited. However, during situations like the Covid-19 pandemic, you may need cover more than ever, due to the increased risk of unemployment. A decision to reduce insurance security might stem from an uninformed place, and you may not be considering how less cover could affect the people you wish to protect. It’s important to consider the bigger financial impacts, as you may be saving money in unexpected places, from eating out less, not using as much petrol and fewer luxury purchases. This saved cash could be used to maintain your financial safety nets. That is why reviewing your financial objectives and goals is important before making any sudden financial decisions during this time.
What about my retirement funds? Would taking a break from these payments be problematic?
Many financial services providers – including Liberty – are giving their clients the opportunity to forego making investments in their retirement funds for up to six months. For non-policy investments, such as direct unit trusts, one always has the option to stop contributions at any time.
While the short-term benefit is obvious, the long-term impact is less so. You don’t only lose the premiums you don’t pay into your fund or annuity; you also lose the growth that would have taken place over that half of the year. The impact of a six-month premium holiday can be larger than you think. For example, a 50-year-old saving R10 000 a month, who stops saving for six months will have roughly R800 000 less to live off by the time they reach age 80.
How do I protect my investments during the pandemic?
Many investors have fallen victim to flight in their ‘fight or flight’ response. But doing so when it comes to investment portfolios can be disastrous. It becomes more important than ever to stay focused during times of economic insecurity, and to ensure that we recognise that while emotion drives markets in the short-term, long-term share markets are driven mostly by earnings. “Getting an investment return means buying when prices are low and selling when prices are high. When markets drop due to a short-term scare, prices have already fallen. Cashing in at this point will only guarantee a loss. It’s unpredictable when markets will recover following a crisis. In uncertain markets, investment managers actively look to limit risk, by moving money between shares and other asset classes to ensure the returns that recovering markets may offer.
How is the virus affecting the property market – and how does that affect my property portfolio?
The global property market has been particularly hard hit by the pandemic, mostly due to the adverse effect on rentals, both commercial and residential. It’s resulted in widespread defaulting on rental payments,
With the Johannesburg Stock Exchange’s All Property Index down by over 50% since the start of 2020, the exact extent of the negative impact on property portfolios remains difficult to determine. However, the underlying value of this asset class will be what sees us through this period of insecurity – in other words, weathering the storm. A resurgence in the property market has already been noted in other countries where lockdowns have been lifted. The Chinese composite Purchasing Managers’ Index climbed back to 53 in March from a record low of below 30 in February; much stronger than expected by economists.
How has the Moody’s downgrade affected investments? Are there opportunities for investments to see growth in the long-term?
When ratings agency Moody’s Investors Service downgraded South Africa’s sovereign credit rating to sub-investment grade, there was a widescale fear of how deeply this would affect the local economy. However, the impacts of the lockdown ultimately dwarfed the effect of the downgrade, meaning the timing made it appear underwhelming when compared to Covid-19 – according to economist Dr Roelof Botha. While the downgrade led to compulsory selling of SA bonds by fund managers, the current yield on the country’s long-term bonds has become more attractive – as the bond yield spreads between high-income countries.
“With negative real bond yields in the US, Japan, Canada and the European Union, it is inevitable that fund managers will seek to diversify investments in emerging markets that tick the crucial boxes relating to the size of the economy, the quality of financial markets and corporate governance standards,” said Botha, recently. Essentially, this is further evidence that opportunities for growth will present themselves through even the most difficult times.
It’s why now, more than ever, talking to your Financial Adviser to understand what makes the most sense for your unique needs could be one of the most valuable decisions you can make. The numbers don’t lie: 73% of people with financial advisers feel more confident about their financial future.
This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services.