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  • Writer's pictureAwie de Swardt (CFP) MD Futura SA

Covid-19 and your retirement fund investments

Updated: Jun 10, 2020

Retirement fund members world wide were shocked by the slump in the markets during March 2020. We saw an immediate spike in members utilizing their retirement funds investment options to make changes to their portfolios.

We saw a fall in the markets of over 30% and many members switched out during March at these lower levels locking in their losses. By end of March most portfolios recovered almost 50% of this fall and the average balanced portfolios ended March on around minus 12 to 15%. To make matters worse for members who switched out in middle March, the average balanced portfolio returned 10% positive for April 2020.

To put it into context:

If you had R100 on 1 March it fell to R70 middle March, had you switched out at that point and invested in cash you would have received a return of around 0,5% for March and 0,7% for April. Your R70 will be worth less than R71 end of April.

If you left your investment in a balanced portfolio your R100 at the beginning of March would have been R93-50 at the end of April. That is 31% more than the individual who switched out.

The lesson once again is when markets fall don’t panic, a fall in the markets invariably causes strong emotional reactions of panic and fear, which is natural, but the best response to such a period of uncertainty is to do nothing. We do not know how low the markets will fall but we know it will be followed by a recovery.

Remember your years to retirement. If you do not plan to retire in the next 5 to 7 years, there is no point in worrying about short-term volatility.

Don’t try to time the market it often leads to locking in losses like in the example above. Consistency in your investment strategy will give you the best results with little stress and fear.

Choose and appropriate long-term strategy, and one or more well-diversified portfolios and stay the course, this is the best option for long-term investors.

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