Markets will ultimately recover after Covid-19 crisis
If you have many years of saving left until retirement, the best thing do is nothing
Investing when markets are low is like shopping for a bargain, says an investment analyst.
What should I do about the hit my retirement savings took when the markets crashed, is a common question members are asking, according to the country’s largest retirement fund administrator.
No matter who you ask, the answer is that if you have many years of saving left until retirement, the best thing you can probably do is nothing.
If you receive a quarterly statement from your retirement fund, you would probably have noticed a big fall in your values since the last statement to the end of March.
You will have read about big falls in the market in February and March when the local share market as measured by the JSE’s All Share Index fell about 34%, according to Motswedi Research. It ended the quarter about 21% down.
Global markets also fell sharply although the blow for local investors was cushioned by the weakening rand, bonds were down and listed property took a horrible more than 40% hit.
As a retirement fund investor, you will probably be exposed to all these asset classes.
Since the end of last quarter the market has recovered quite a bit – and so if you received a statement at the end of April, it should show your savings looking a bit healthier than at the end of March but still down from your December values.
The All Share index, for example, remained about 10.4% down for the year at the end of last month, Momentum reports.
If you are more than five years away from retirement, remember that you have many years during which time the market can recover.
Belinda Sullivan, head of best practice at Alexander Forbes, told a webinar for retirement fund members recently that over the past 40 years there have been nine market crashes that have lasted between two and 11 months and a year.
What is going on in the world right now is deeply unsettling, but your investment decisions should not depend on what the markets are doing now.Steven Nathan, CEO of 10X Investments
The subsequent recoveries in share prices after these crashes have taken between one and three years, Sullivan says, although this time market commentators are worried about the severe impact on the economy and a recovery could be longer coming.
We don't know how long it will take before the market recovers this time and it could be longer, given the significant impact on the economy.
News about the impact of the coronavirus and the lockdown on our economy will keep the market volatile for a while and some of the ground the market gained in April could even be lost again.
Sullivan says it is impossible to say how long the market will take to recover fully this time.
Steven Nathan, CEO of 10X Investments, says what is going on in the world right now is deeply unsettling, but your investment decisions should not depend on what the markets are doing now.
Instead you need to anchor on the long term for which you are investing and what you need your investments to do over that time, he says.
Old Mutual in its Long Term Perspectives study of the investments South Africans use, shows that an investor who had diversified across shares, bonds, listed property and cash, both locally and globally as retirement funds do, would have beat the inflation rate by 5.8% over the past 90 years.
That has not been the case for the past five very unusual years, but Old Mutual believes the fact that the markets have fallen increases the likelihood of better returns in the future – it is predicting that you will over the next five years earn 4.9% more than the inflation rate. That means if inflation stays at 4.1%, you will earn on average 9% a year, but it might not be 9% in a straight line – one year may be bad and the next really good. When it averages out over the years, your savings should show good growth.
This means the answer to another commonly asked question – could my investments fall further – is unfortunately yes, Sullivan says.
But this is no reason to stop investing or to change your investment strategy to one with less exposure to volatile share markets.
Nathan says it’s better to invest when markets are low as you will be buying investments when prices are lower. It’s like shopping for a bargain, Sullivan says.
We never really know when investment markets will do well or badly over the shorter term so the best strategy is to invest as much as you can through good and bad investment markets, Nathan says.
The only things you need to worry about is contributing enough to your retirement fund, having enough exposure to those roller coaster shares and contributing for long enough. Check with your fund or a financial adviser that you have those things in place.
For the rest, leave your fund investments to be – you have many other things to worry about right now.