Make sure your investment strategy is geared to survive market turmoil

Alex Funk, head of Asset Consulting at GCI Asset Consulting.

Many investors are panicking as their portfolio values fall—but there could not be a worse time to take decisions based on short-term considerations, says Alex Funk, head of Asset Consulting at GCI Asset Consulting.

“Market volatility of this magnitude is definitely cause for concern, and I think it’s safe to say that everybody is worried. But one must bear in mind that these conditions are not conducive to taking sound, long-term decisions,” Funk says. “While selling is an understandable, knee-jerk reaction, we strongly advise investors rather to revisit their long-term investment strategy and ensure that they have invested in a properly diversified mix of bonds, stocks and property in both local and international markets. The question that should be uppermost is, ‘Do I have a long-term investment strategy that is designed to withstand market turmoil like this?’

“If the answer is no, then that’s a cause to recalibrate your investments. Otherwise, the best advice would be to trust in the strategy and sit it out. Trying to time the market is always doomed to failure.”

The fall in global markets was preceded by the bursting of the Chinese stock market bubble, which saw investors overcommitting themselves to buy into Chinese companies at virtually any price. It has to be said that the Chinese government also played a part first by making cheap money available, and then suspending trading. Devaluing the Chinese currency several times also did not help. This raised fears regarding the weakness in the Chinese economy and the implications this will have for emerging markets and exporters of commodities.

Funk says that GCI’s rigorous methodology for choosing the right portfolio mix for its clients was created to help weather storms such as this. “Of course, every investment advisor is watching the markets like a hawk, and we are no exception. But so far I am pleased to note that our multi-manager strategy has served us well, and there is a much lower than average drawdown on GCI’s fund portfolios.”

Investors who have already retired face a more immediate problem because they are already living off a portfolio that has probably lost a lot of value. Funk’s advice to them is to make sure that they are drawing income off from low risk assets or an income fund, which typically rise in value during such times. This strategy will allow them to leave their growth assets in the portfolio to rebound in time.

Something else that investors and their advisors should consider is that market volatility often creates opportunity for those with an eye for acquiring quality shares at good prices. Funk agrees, saying that GCI is actively searching for fund managers with just such an eye, who can position their funds now for the next five years.

“These are testing times, make no mistake—but the real call to action is to make sure your plan is sound, and then adhere to it,” Funk concludes.