The cost of living is rising rapidly. Global uncertainty is taking its toll on markets, leaving people wondering about their long-term financial well-being. For many, this means one thing: time to re-examine their retirement and investment strategies.
But before you go making any hasty decisions, stop. Think. Now is the time for cool heads, to keep your eye on the bigger picture, and to keep talking to your adviser, says Stian de Witt, CFP®, executive head of financial planning at NMG Benefits.
“We work hard for our money, and it’s easy to let our emotions take over when we believe our life savings could be negatively impacted. But when you act on an emotional impulse, it often leads to a bad investment decision which can have long-lasting effects. The way to make sure your long-term strategy stays on track for positive growth is to stay calm and rational,” said De Witt.
Investor’s remorse is real. A recent MagnifyMoney survey showed that two in three of investors end up regretting impulsive or emotionally charged investment decisions. And once investor’s remorse sets in, the investor is inclined to become even more risk-averse, which means they could miss out on market recovery and growth.
So, how do you stay calm and keep your investments on track in the eye on a storm?
The stock market has had its share of volatility in the past 20 years, with crashes in 2001 and 2008 and the Covid-19 global crisis. Every time the market has crashed, it has also recovered. While it is important to remember that past performance is not a guarantee for future gains, it is a good indicator.
“What goes down will eventually come up again. You don’t know how long a bear market will rally. That’s why it is so important to put your macro-thinking cap on and stick to your long-term investment objectives,” said De Witt.
Instead of fretting over constant fluctuations, rather evaluate your returns over longer periods of time. The biggest mistake an investor can make is to sell when markets are down, as all you’re doing is locking in your losses. We want our money to last 20-40 years and we need to think along those lines – not 1-2 years.
“Market volatility is daunting, but it only becomes a problem when you liquidate an investment. That’s why most advisors will tell you to set up a Rainy Day (emergency) fund, which will prevent you from liquidating an investment when markets are volatile,” said De Witt.
Timing the market is best left to the professionals. Don’t go making important financial decisions based on tips or pointers you read online. Shuffling your asset allocation at the wrong time can lead to losses that you won’t be able to recover from. Rather make sure your portfolio is adequately diversified so that when volatility hits, you don’t have all your eggs in one basket. The losses from some investments will be smoothed out from the gains on other investments. Even Warren Buffet says: It’s not timing the market that counts, but time in the market that counts.
Living annuities and life annuities don’t operate in the same way. With a living annuity, you are obliged to draw a regular income on a monthly, quarterly, or annual basis. There are also legal limits as to how much you can draw. A life annuity is underwritten by an insurer and gives you a guaranteed income for life. If you cash in on your living annuity, you will face fees, tax and penalties.
“Many people are tempted to move to a guaranteed income, but you will lose money. Stick to your long-term plan. Rather speak to an accredited financial advisor and they will be able to assess your circumstances and help you get the most value from your long-term financial strategy,” said De Witt
If you want to move to a Life Annuity, then do this when interest rates are at a high, not when interest rates are rising.
