'The October Effect' in 2014

For stock markets, October is historically the cruellest month of the year. The crashes of 1929, 1987, 2001 and 2008 all occurred in this unfortunate month, and it looks like 2014 is no exception to the rule.

After hitting a low in February 2009, the markets (locally and abroad) started to recover and ever since have, with a rare exception, carried on recovering on the fumes of record low interest rates locally and overseas. For local investors it meant that they experienced exceptional growth of their portfolios for at least five consecutive years. The weakening of the rand during the latter part of the period added to the good news because of the direct and indirect exposure of portfolios to offshore markets. The big question is, are we experiencing a crash or a correction.

'Not so Down' with diversification

"Although we are not sure what the magnitude of the downturn is going to be, it's important to be aware that these movements will push portfolio values down," said Rick Briers-Danks, CERTIFIED FINANCIAL PLANNER® professional with Veritas Wealth in Cape Town. "We are currently very happy with the way in which portfolio managers have reduced their allocation to equities (shares) in anticipation of the market weakness. Nearly all are holding historically low SA shares in their portfolios. Our firm's financial planners continue to monitor what portfolio managers' views are and how they adjust the asset allocation of the different portfolios to reflect the changes in asset prices," said Briers-Danks.

"As always, we can’t be sure what direction the markets and the currencies will take. When we find ourselves in that position we know the best thing for any investor is to have a very well diversified portfolio," he said. "No matter who handles your investments, it's worth checking that your portfolio is well-diversified," he adds.