by Martin de Bruyn, CFA, CFP®
We already had to cope with five years of low returns from South African shares and now we had a +/-30% decline mainly due to the Covid-19 pandemic. The health risk and economic slowdown is very serious and will be with us for a while. The markets have however priced-in a lot of the coming slowdown, with share prices worldwide falling precipitously. Even though we may feel alone, we are not, this is a world-wide crisis and us as humans, globally, are in this together and will get through this together.
Our commitment as your wealth partners, is to update you on market movements and applicable news on a bi-weekly basis. We will continue scheduled review meetings and ad-hoc meetings as required on a remote basis. The following software can be used for video conference meetings, ranked in our order of preference. Most of them are free assuming one can access a good internet connection at affordable data rates:
- Zoom
- Skype
- Microsoft Teams
- Google Hangouts
- Gotomeeting
- Apple Facetime
Even if you have not used this medium before, do not fret as we will guide you step for step.
The current situation is very serious, but it is not the time to panic. Now, more than ever, we need to take a bird’s eye view of where we are and where we are probably going in the future, based on our study of market history, as it is the best guide for the future. One needs to have a degree of belief in human ingenuity and to remember that in the past, the optimists have triumphed. To sell now and abandon your financial plan, is most probably the worst decision one can make, to remain invested is much better and to take more risk if you are able too, will probably yield the best results in the fullness of time.
There are, however, investors facing an even more difficult period – those who currently are retiring. So, what to do? Some investors seem to want to abandon growth assets completely – and who can blame them, but is that the right thing to do? A quote often attributed to Mark Twain says that history never repeats, but it often rhymes.
So, let’s look at previous periods where we had significant negative monthly returns. Since 2002, there were three months with significant negative monthly returns on the JSE: July 2002, September 2008 and October 2008, with returns of -13.44%, -13.24% and -11.65% respectively.
What would have happened if an investor retired during each of those periods and disinvested from a medium equity fund, into a money market fund and stayed there, comforted by the fact that they no longer face any risk, i.e. completely de-risking their portfolio? In addition to that, let’s assume they retire with a R5,000,000 lump sum and withdraw at a sustainable rate of 4% per annum.
The table below summarises the different outcomes as at 29 February 2020:
Source: Glacier Research & Morningstar
In each one of these periods, if you had realised your losses and moved into a living annuity consisting of 100% cash, you would have been worse off. You would also have had a lower monthly income today.
Again, our commitment is to be with you in this difficult period, whether it be special ad-hoc video conference meetings after hours or long phone calls. We are in this together and will get through it together. Hopefully as stronger and better human beings.
We will be in touch, but please stay in touch too.
Sources:
- Impetus Wealth Advisors
- Glacier Research published on 20 March 2020
