In light of South Africa’s General Election and the potential market volatility it brings, Old Mutual urges investors to remain steadfast in their investment strategies and avoid making impulsive decisions based on short-term market changes.
Johann Els, chief economist at Old Mutual, emphasizes the need for investors to brace for potential fluctuations across various asset classes as the elections approach.
“Political transitions often lead to uncertainty and increased market volatility,” Els explains. “However, historical data from past political shifts suggest that markets typically stabilize, eventually returning to more predictable patterns.”
Lizl Budhram, head of Advice at Old Mutual, underscores the importance of maintaining a long-term perspective when markets react negatively. “South African investors should stay the course and avoid impulsive decisions prompted by temporary market downturns.”
Budhram points out that hasty decisions to sell assets during a market dip can result in locked-in losses, which might have been recovered by staying invested.
“Remaining invested allows for participation in the market’s eventual recovery, which has historically followed most downturns. Exiting the market can incur significant opportunity costs.”
“When investors sell during a dip, they often do so at the lowest market values, moving funds into safer but less profitable investments, such as cash, out of fear. This action locks in losses and causes them to miss out on potential gains when the market rebounds.”
Recommended Strategies:
1. Focus on Long-Term Goals: “Short-term market fluctuations can be concerning, but long-term growth prospects often overshadow these worries. It’s essential to understand your risk tolerance and investment objectives to navigate market volatility,” Budhram advises.
2. Diversify Investments: Budhram stresses the importance of diversification as a strategy for managing risk during market turbulence. “By spreading investments across various currencies, asset classes, and geographies, investors can mitigate adverse market movements.”
3. Regularly Revisit Your Investment Plan: Financial advisers provide personalized guidance tailored to individual risk profiles and goals. Budhram highlights the importance of regular check-ins. “Anchoring investment plans in a comprehensive understanding of each customer’s needs and goals helps instill confidence and foster a disciplined approach.”
“During uncertain times, revisiting your investment plan can offer peace of mind and ensure you are on track,” she adds.
4. Seek Guidance for Major Milestones: Budhram advises investors experiencing significant life events, such as retirement or funding education, to seek expert advice. “Significant decisions should not be based on election expectations. History shows that outcomes often defy predictions, making it crucial to remain rational and focused on long-term goals.”
Accessing savings during volatile periods can have negative effects, making professional guidance essential.
“For those nearing retirement, the transition from accumulating to distributing assets requires careful consideration. Like those who retired during the COVID-19 market decline, it’s crucial to understand the short-term impact on savings and explore all options.”
5. Consult a Financial Adviser Before Making Decisions: Budhram warns against reacting emotionally to short-term market movements. “Emotional responses can cloud judgment and lead to poor decisions. Financial advisers play a crucial role as calm voices of reason, guiding investors through turbulent times and encouraging adherence to long-term plans.”
“Before making any financial decision in response to the national election, consult with a financial adviser,” she advises.
Market fluctuations, especially during elections or global economic changes, highlight the importance of sound financial planning. Professional advisers provide invaluable insights, helping retirees navigate decisions and make the best choices for their unique circumstances.
Source: Donald Van der Merwe, Programme Executive at Old Mutual Africa.
