DO NOT Panic, Part 4

Harbour Wealth – April 2020 Client Update:

 

Q1 2020 was one of worst on record as world markets were gripped by rapid spread of the Corona virus, and consequent dramatic action taken by countries around the world to mitigate the spread and to save lives. This caused many markets, including South Africa to crash. In addition, we saw the sudden and dramatic fall in the oil price which further exacerbated the impact on markets and stocks.
The table to the right indicates the returns of local and global indices up to 31 March 2020.

 

Index Month to Date Year to Date 1 year
JSE Overall -12.1% -21.4% -18.4%
SA Listed Property -36.6% -48.2% -47.9%
All Bond Index -9.7% -8.7% -3.0%
Rand/USD -13.5% -27.7% -23.8%
S&P 500 -12.4% -19.6% -7.0%
Nasdaq -10.0% -14.0% -0.70%
MSCI World Index -13.2% -21.0% 10.3%
Brent Crude Oil -60.7% -66.3% -67.7%
Gold -0.80% -3.9% 22.1%

Why financial planning is so vital during these difficult times:
In these difficult times we can learn from the behaviors that happen around us. The luxury of this time is many will have the time and be able to be present to make these observations. While the situations leading to these global market affecting events change human behavior on the whole repeats itself. This is because the human emotions of fear and greed can lead to many poor outcomes and this is witnessed regularly with investment behavior. The value of a good advisor in these times can make a significant difference to long term outcomes. This is not only because of the role they play in managing and protecting your investments with the tools and expertise they may have in a situation where the market deals them cards, they need to play. There is a bigger role in helping clients navigate their emotions in these difficult times. This is easier when clients get real independent advice. The purpose of advice is to provide guidance and a plan for better outcomes and not to sell clients products. This has always been our guiding principle at Harbour Wealth.

This is why we focus so much on the planning process and use our digital tools to assist where we can. We were the first to bring digital collaboration to our client base. Our advice process has been developed from research
and testing where we learned the common pitfalls of more common approaches like managing money on risk profiling alone. The problem with risk appetites is they can change in different market conditions. In buoyant markets everyone is aggressive and in bad markets everyone is conservative. As Mike Tyson says, “everyone has a plan until they are punched in the nose”. So, if your plan is built around the state of your emotions of greed and fear then in these situations you are going to feel like you’ve just been punched in the nose.

The comfort you can take in our process of “protect and grow” wealth is that we remove the emotions and noise out of the process and focus on better outcomes for clients. In our method of cash flow management where we have money invested over different time horizons depending on client’s needs for it, we are able to avoid the pitfalls often associated with very volatile markets. The biggest of these is drawing an income from your investments without a cash flow plan. We avoid this issue because we provision for income in assets that have no equity exposure, so we are never forced to sell investments that have made losses to provide income. The investments with the most equity exposure is in the 5 year plus allocation and while markets might be volatile investors have time to witness
market recoveries. This is why we ask all to remember this is long game and when planning we committed to those timelines so don’t panic. While the markets may be volatile, we have time. In the interim we will do all we can to avoid losses and capitalize on opportunities that present themselves.

Harbour Team

 

 

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