Investing through the global chaos - investing in tricky financial times
Geopolitical issues, a global trade war, local political uncertainty and a struggling economy have made it difficult for investors to navigate investment markets. It seems chaos is the new norm, and South African consumers are struggling to balance their budgets as inflation rises, food prices are increasing, the petrol price is at a record high and household debt levels remain elevated.
When there is “doom and gloom” all around, what should investors do when things around them seem to be in chaos?
According to Wanda Krause, change strategist and PHD at the Faculty School of leadership RRU, five ways to stay focused in chaotic surroundings are to be aware of your situation, recognise the truths and possibilities, stop focusing on the negative, take a step back and get assistance. This holds true in the investment world as well. It is critical that you first understand your current financial situation, and how the surrounding environment is impacting on your financial position. You need to consider what is true, and also consider what new opportunities may arise. This means taking a bird’s eye view of the full picture and speak to a professional to guide you through the turmoil. At the end of the day you need to stay focused on your end goal, and make decisions based on what is inside of your control zone.
Although we cannot control what politicians say, where the interest rates are going or what underlying fund managers invest in, we can control where we place our capital, who we get advice from and what products we invest in.
Here are four areas in which you can take control of your situation and ensure that your financial plan remains on track through the new normal world of chaos.
Education is key
These days, it is not just about traditional investment vehicles such as Retirement Annuities and Unit Trusts, there is a much larger universe of investment products such as Tax Free Savings Accounts, Passive Investment Funds and Cryptocurrencies. Further to this, investments can also be made in art, gold coins and collectables. All investments have different return parameters, various risk factors, unique structuring methods and a number of cost considerations. Whether you prefer Robo-Advice, Algorithm Trading or a traditional Financial Adviser, it is essential that you have an understanding of what is available before you start planning.
Before considering what to invest in, or what changes you need to make to your current position, you need to know where you are going. Every investment will take you on a journey, and you need to decide if you are comfortable with the ride. An aggressive unit trust investment for your child’s university fees will have a completely different journey that investing in a contemporary art piece that you wish to sell in 30 years’ time at a profit. The outcome would be just as different as both investments could end up not delivering on the desired objective, or it could exceed your expectations. The management of your investment is therefore critical as you not only need to understand the risk and return, but also weigh up the fees, liquidity and time horizon.
A well-defined investment plan will most likely have more than one underlying asset class. Diversification allows your investment portfolio to absorb shocks and perform consistently through all market cycles. It is impossible to have your entire portfolio performing at optimal levels at all times. Therefore, having a wide range of local and international investment vehicles in various products, funds, asset classes, investment managers and structures will allow your portfolio to tolerate all uncontrollable forces.
At the end of the day, what you do with the investment throughout its life’s journey will ultimately provide you with the most desirable outcome. Whether you manage your investment yourself, or have a professional making the decisions on your behalf, the decisions need to be made holistically and informed. It may be that an investment is not delivering on its expected outcome, or your needs have changed and therefore your investment position needs to be rebalanced. Expert advice on the management of your assets and investment choices could be the difference between a miserable retirement and an exceptional retirement. It is therefore critical that a full holistic and diversified investment framework is set out and managed and reviewed accordingly.
Your future is in your hands and you need to be in control of it. Only once you have a detailed financial plan that is diversified and appropriately managed, will you be able to control any undesired occurrence through informed and unemotional decision making. There will be many roadblocks, potholes and distractions along the way, but once you know where you are going you can find a few routes that will get you there.
We may not know what tomorrow will bring, but in the new chaotic investment word, those who are focused and in control will ultimately be rewarded.
Alexander Forbes Financial Planning Consultants (Pty) Ltd is a licensed financial services provider. The information provided in the article is not advice, as defined in the FAIS Act.