JOHANNESBURG – 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, while 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 Royal Roads University (RRU) in Canada, 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 your financial plan remains on track through the new normal world of chaos.
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 than 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 crucial as you not only need to understand the risk and return, but also weigh up fees, liquidity and time.
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.
Barrie van Zyl is a senior manager at Alexander Forbes.
The views expressed here are not necessarily those of Independent Media.