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If you are close to retirement, the impact of concerns over the coronavirus on local and international stock markets may have you concerned about preserving your hard-earned savings.
But what should you do?
Don't panic, do some research
"Please do your homework before you panic to see where exactly your funds are invested," says Brendan Gace, head of private clients at Anchor.
He notes that, in recent years, many pension fund administrators have created "default conservative portfolios" for members who are close to retirement.
If this option isn't available on your pension fund, then he expects you are likely to have suffered some short-term losses.
"Thankfully, pension fund investments are highly regulated and investment managers have to keep your investments well diversified and avoid the risk of 'all the eggs in one basket'," he explains.
For example, most pension funds would only be invested up to a maximum of 75% in equities, with 30% of that possibly being invested offshore.
"Therefore, with the recent decline in the value of the rand against the US dollar, that part of the portfolio could easily have gone up very nicely," says Gace.
"Many pension fund investment managers have also been expecting a bit of market drop, so they could easily have already taken some steps to further reduce the potential losses."
For investors nearing retirement, and in the current economic environment, it makes sense to him to lower your equity risk, and rather increase your cash or bond exposure.
"Local cash and bonds are yielding above 7% and 8% very easily. With inflation near 4% that means a 3% real growth rate for very little investment risk. That could be a real 'sleep easy' option for retirees at this point in time," he explains.
Stick to your process
Harold Strydom, investment strategist and portfolio manager at Citadel, suggests to "stick to your process".
"In preparation for retirement most people would already have set out a road map with the help of their financial advisor. Don't throw the map out of the window," explains Strydom.
"A well-constructed, diversified portfolio is essential when heading into 'Armageddon' – exposure to US dollar cash or treasuries or gold can produce positive rand returns, while protective derivative strategies can help cushion losses from equity exposure."
Ryan Jamieson of Fairtree says investors who are appropriately allocated nearing retirement and are exposed to a broad, diversified range of local and global assets in their portfolio would have been less likely to experience the full impact of last week's market sell-off.
"Its impossible to consistently and accurately predict the direction of equity markets - and when downturns or corrections may occur. Broad asset class diversification provides a first line of defence for investors pre- and post-retirement and an appropriate blend of local and global asset classes within a suitable investor risk profile is of paramount importance," says Jamieson.
Loss aversion bias
Peter Foster of Fundhouse says that, with the Coronavirus currently causing turmoil in investment markets globally, they have seen significant market moves across asset classes over the past week.
"With such an event it is extremely difficult to estimate investment outcomes, however, one trait is reasonably certain: our human bias for loss aversion, which is heightened when fear like this spreads," he says.
"What has hit investment markets are the multitude of warnings issued by companies indicating that their ability to operate and trade is being severely impeded."
Share prices have fallen as a consequence, while safe haven investment grade bonds have rallied as investors seek shelter.
From an investment perspective, he says one is, therefore, faced with a few choices. One would be to react to the loss aversion bias and de-risk, selling equities where you expect markets to fall materially further. This can be a costly exercise as timing these trades is very difficult.
Alternatively, adding to equities after they have fallen is a higher odds trade and can enhance wealth creation.
In his view, one of the key aspects to consider is whether the impact of COVID-19 will have temporary or permanent effects on asset prices.
"There are scenarios where the impact of the virus could be permanent though. Take for example a protracted economic slowdown which is now seen as a natural extension of a temporary economic slowdown," he says.
"Can companies with high debt levels service their repayments if they are operating 20% or 30% below normal sales levels as a result of the outbreak? Are we at risk of the global debt bubble unwinding as a result?"
Long-term focus
Craig Turton, vice president of wealth and retirement at Purple Group, says any retirement investment which has equity exposure would have dropped in the last month. The drop is global and not isolated to South African investors.
"Even though it is very difficult, investors nearing retirement should not be distracted by the drop in markets. It is essential to keep a long-term view on your investments," says Turton.
"Short term dips are historically part of parcel of investing. Keep your contributions going into the same strategy as you are investing at a good time in the markets and prices are low."
He says if you withdraw into cash now, you essentially realise the losses. By remaining invested, you will allow your investments to recover.
"My suggestion would be to not focus on the short-term, but to rather look at long-term returns that the market can offer."
"If you are able to delay your retirement date, which would mean more contributions in a down market, and delaying the draw down from your investments would be a great way to protect your value right now while the market needs to correct."
Nashalin Portrag, head of FundsAtWork at Momentum Corporate, says one of the most important decisions that we will ever take is what to do with our retirement savings when we retire. People should have a long-term investment strategy even if they are close to their normal retirement age.
Their investment strategy - that is the portfolios they invest in - a couple of years before retirement should not be dictated by short-term market volatility or uncertainty but rather by "what is going to happen after retirement".
What can you control?
Grant Locke, head of robo-advisory firm OUTvest, suggests focusing on what you can control.
"Timing short-term market movements is extremely difficult. We think that your time is better spent on things that you can more easily control, such as your own personal retirement plan," says Locke.
For example, if you are getting closer to retirement and you plan to take a significant cash lump sum or convert into a guaranteed annuity, then you should have been steadily reducing equity exposure as your retirement date approaches.
But if you have more than 10 years to retirement, or plan to convert 100% into a living annuity with a high equity exposure, then he suggests you consider maintaining your equity exposure as, over the long-term, equity markets have delivered positive returns even through world wars for those with long enough investment horizons.
Locke points to an interesting statistic: from January 1, 1990 to February 29, 2020, there have only been 82 days where the US stock market has dropped more than 3% in a single day. That is 82 out of about 7 800 trading days.
