'The coronavirus is making my investments lose money!'

Retirement funds should have some virus protection

The chaos on financial markets are causing concern about pension funds and other investments as some people are fast approaching retirement.

Now is not the time to make rash decisions. Picture: 123RF/CATHY YUELET
Now is not the time to make rash decisions. Picture: 123RF/CATHY YUELET

Rose (57) walks into the meeting with a creased newspaper in one hand and her 60-year-old husband’s hand in the other. Anyone can tell that this couple is stressed.  

The media headlines of the impact of the coronavirus on the financial markets have made them concerned about their pension fund and other investments as they are fast approaching retirement. Their concerns are summed up as: “The coronavirus is making my investments lose money!” 

Zanele Kunene
Zanele Kunene

Unfortunately, the reality is that the coronavirus is having a significant negative impact on financial markets, not only in South Africa but also globally. The fear of losing money makes us all want to run for safety, but we have to calmly assess the impact and also review our financial strategy before we react.

You have saved well over the years, it is not the time to make rash decisions. Ups and downs in the market are all part of the investment journey. 

Retirement funds such as pension funds, provident funds, and retirement annuities are obligated by Regulation 28, under the Pension Funds Act, to protect you from massive exposure to volatile asset classes. Asset classes are different pockets which make up your investment fund, including equities, bonds, cash and property.

The most volatile asset class is equities, which is based on share prices that are influenced by company performances, industry trends, politics and global events such as the coronavirus. The regulation aims to safeguard you from over-exposure to these movements.

Retirement funds also provide members with different portfolio options, so you can choose an investment fund with a mix of asset classes that is suitable for your investment goals and risk profile. It is important that you review which investment fund your retirement fund is invested in and ask about the other available options.

If you have a unit trust, the fund managers are tasked with monitoring the market trends and actively adjust the position of the investment funds to protect the investors and meet the fund's investment goal. 

Some people prefer to be conservative while others opt for the highest level of risk. Your risk appetite or risk profile connects you to the supporting level of growth/return. For example, if you are invested in a high-risk investment fund, you’d expect a high level of growth in your investment as you have taken on so much risk.

No matter your risk appetite, adding diversification into your portfolio decreases your exposure to high levels of risk. Diversification is an exercise that ensures that all your eggs are not in one basket.

One thing the coronavirus has taught us is that we cannot stop it but we can change our behaviour to protect ourselves. This also applies to market fluctuations; we cannot control or even predict them but we can control how we react.

As you approach retirement, you are still a long-term investor, just like millennials, because  your retirement fund will have to take care of you after retirement for 15+ years. When making the decision to take a cash lump-sum at retirement, think about the 15+ years that need to be funded.

If you are thinking about withdrawing all your investments because of fear, you must realise that withdrawing right now will mean that you are locking in the loss. There is no substitution for time and time out of the market cannot be bought back.

We don’t know if the impact of the virus is short term or permanent but we do know that markets usually recover from such movements in due course. 

In the meanwhile, take care of your debts and build cash savings to delay withdrawing from your investments. As you approach retirement, speak to your financial adviser about decreasing your equity exposure. Before you make any major changes, make sure you are not reacting emotionally and that you have a qualified financial planner guiding you.

Rose and her husband left the meeting with their fears slightly eased and their focus back on track.

* Kunene is an associate financial planner at BDO Wealth Advisers