Johann Els, chief economist at Old Mutual, says that investors must prepare for potential market swings across various asset classes in anticipation of the elections.
“Political transitions breed uncertainty, often leading to heightened market volatility,” he notes. “However, looking at historical insights from political shifts in financial markets, markets tend to stabilise, and investors may notice a return to more predictable patterns."
According to Lizl Budhram, head of Advice at Old Mutual, this fact underscores the imperative of maintaining a long-term perspective when markets respond to bad news. "South African investors must stay the course and exercise caution against impulsive decisions triggered by transient market downturns.”
She says that when investors act hastily and sell off their assets during a market dip, they often lock in their losses, which might have been recovered had they held onto their investments.
“Staying invested, on the other hand, allows investors the potential to participate in the market’s eventual recovery, which historically follows most downturns. Moreover, the opportunity cost of exiting the market can be quite substantial.
"This is because when investors sell their investments during a market dip, they are essentially selling their assets when the market values them at their lowest, often not receiving their true value. They then move this money into safer, but less profitable investments, such as cash, because they’re worried.
“This decision then locks in their losses and also means they could miss out on making more money later when more profitable opportunities come up.”
Here’s what to do instead:
Budhram emphasises the significance of different time horizons in financial planning, delineating short-term immediate financial needs, medium-term five-year goals, and long-term goals with 10-to-40-year time horizons as foundational pillars.
“The long-term focus will lead to diversification as a critical strategy for managing risk during market volatility. By spreading investments across currencies, asset classes, and geographies, investors can mitigate the impact of adverse market movements,” she says.
"By anchoring investment plans in a comprehensive understanding of each customer’s needs and goals, advisers can instil confidence and foster a disciplined approach to investing.
"This involves discussions that establish a solid foundation for investment decisions, typically focusing on understanding the customer’s financial goals, risk tolerance, and long-term objectives," she says.
"It’s also important, in times of uncertainty, to circle back to this plan for peace of mind that you’re on track."
"History has shown that outcomes often defy predictions, highlighting the importance of remaining rational and focused on your long-term objectives,” she notes.
However, accessing savings during this period could have detrimental effects, making professional guidance crucial.
“For individuals on the cusp of retirement, for example, the transition from accumulation to distribution of assets is a critical juncture requiring careful consideration. Similar to those who retired during the Covid-led market decline, it is essential to understand the impact the market downturn could have on savings in the short term and explore all available options.”
Find a soundboard before making any financial decisions: While the temptation to react impulsively to short-term market movements persists, Budhram cautions against such behaviour.
"Emotional responses can cloud one’s judgment and lead to detrimental decisions. This is where the role of a financial adviser becomes crucial. Advisers serve as calm voices of reason, guiding investors through turbulent times and encouraging adherence to their long-term plans.
"Before making any financial decision in response to the national election, reach out and speak to a financial adviser,” she says.
Market fluctuations, particularly during elections or global economic shifts, can amplify the importance of sound financial planning and prudent decision-making. Professional advisers can offer invaluable insights, helping retirees navigate these decisions and act accordingly to make the best decision for their unique circumstances.
