Category Retirement
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#Budget2020 – Use the tax cuts to stay on course

02 March 2020 Old Mutual

The personal income tax rates announced in this year’s Budget provides consumers with some breathing space and added cause to review their investment strategies with more optimism.

This is according to Elize Botha, Managing Director of Old Mutual Unit Trusts, who says “Perceptive investors should use the welcomed opportunity of a tax reprieve to recommit to their long-term investment strategy, making prudent use of their money to turn their financial goals into a reality.”

However, the last week saw some volatility in the global stock markets, which is often hard for investors to deal with.

“A well-balanced and diversified portfolio with a long-term perspective serves investors in both good and bad times. If you are constantly changing your investment strategy and time horizon based on market fluctuations, you are unlikely to achieve your desired result over the long term,” says Botha.

“Similarly, if you don’t have a financial plan in place, staying focused when markets are consumed by noise in the local and global economies will be a challenge.”

Botha offers eight considerations that will help investors stay on course.

1. A sound financial plan helps build confidence
Start by reviewing your financial goals and assessing your circumstances. Your financial plan should reflect your needs and risk profile and will take into consideration your current financial position and the time horizon you have available.

Once you’ve established your plan, review this annually with the help of a certified financial planner. Regular reviews will help set your mind at ease knowing that your plan is still working as expected, despite any short-term volatility.

2. A diversified portfolio will spread your risk
A sound financial plan will give you exposure to a good mix of asset classes, including local and global shares, bonds, cash and property.

A well-structured portfolio offers a balance between inflation-beating returns and the stability of fixed income assets. This should give you the confidence that you’re still on track to meet your long-term goals.

3. The whole is greater than the sum of its parts
One of the advantages of properly structuring your diversified portfolio is that a rise in one asset class may offset a temporary decline in another.

Staying the course means taking a view of the total return over the long term. Being distracted by market noise or the performance of only one aspect of your portfolio may easily cause you to make unwise decisions.

4. Don’t try to time the market
Research by Old Mutual shows that investors could have lost out on as much as 44% growth in investment returns if they had missed only the 10 best days of the JSE All Share Index from 1999 to 2019.

A similar study in the USA showed that six of those best ten days of growth followed soon after the 10 most volatile days by two weeks. This means that markets can turn very quickly and it’s best to rather stay the course than trying to make a calls by timing the market.

5. You can’t count on cash
Taking money out of the market into cash may seem like a safe bet in uncertain times, but your long-term returns can be stunted. Cash is unlikely to offer you above-inflation returns in the long term, and well below that of equities, and even bonds.

Unless you have an urgent need for liquidity, cash is not a prudent long-term option if you want your money to appreciate in value.

6. Keep at it
The best results are achieved by those who are in the market for the long term. Saving from a young age is beneficial as is making regular contributions.

If you intend building your long-term wealth and financial independence, you need to disregard short-term volatility. Staying the course means investing through dips in the market in the knowledge that the cheaper you buy, the greater the potential gain.

7. Find the right partner
Old Mutual has been around for 175 years and is a major global financial services company with the tools, experience and people to help ensure that your investments match your needs and goals. It’s easier to stay the course when you have a trusted adviser on your side.

8. Do what’s best for you
Removing the emotion from your investment decisions is never easy. Drawing on the expertise of a financial planner is a great way to do that when setting your financial plan in motion.

Having an experienced and trusted planner at your side also makes it easier for you stay on track with your investment plan.

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