Riccardo Fontanella, Head: Technical Marketing at Alexforbes
The war between Russia and Ukraine has affected trade and financial markets throughout the world. Many countries, including South Africa, rely on both these countries to import and export goods and resources. The world’s response to the war – putting severe sanctions in place against Russia – has also made goods and resources less available and more expensive.
Consumers are feeling the pinch. The rising cost of petrol increases transportation costs and ultimately consumer goods, resulting in a lot of uncertainty about the future. These events, and the way people feel about them, have also affected economies around the world. Economies are not expected to grow as fast, or in some cases, they may even shrink.
Inflation and interest rates are expected to increase. This environment is generally negative for investments and financial markets, which means that investment values have been decreasing recently. This has also affected the value of retirement savings. Unfortunately, we expect this financial instability to continue for some time.
Things to keep in mind
Financial markets go through cycles – they rise and fall. When one market cycle is finished, the next one begins. During your working years while you are saving your hard-earned money, you will experience a few market cycles.
Although financial markets have recently decreased in value along with your savings, as you continue saving for retirement, you will be able to buy investments at cheaper prices. In the case of shares, for example, portfolio managers can get more shares than they could before investments fell for the same amount of money. Because financial markets tend to recover, this can benefit you over time.
It is important to remember two important things about the investments that retirement savings are invested in:
- We expect the value of investments to grow over longer periods of time
- The value of investments can go down due to market volatility over shorter periods of time.
For this reason, it is better to focus on long periods like five or ten years when you look at your retirement savings.
What should you do as an investor during these uncertain times?
- Find out more about the recent decrease in investment values and how this affects your retirement savings
Don’t try to switch your investments based on speculation on what the markets will do.
- Trust your investment specialists
Investment professionals evaluate large volumes of good information. They use their experience and understanding of markets and economies to make decisions on the investment portfolios your savings are invested in.
- Get advice before you act
Before you make any changes to your retirement savings, make sure you’ve got good information, understand your options and have asked for help from a qualified financial adviser if you need it.
- Reflect on how you spend your money
Use this time of uncertainty to get more control of your financial situation. Do you know exactly what you spend your money on each month? Are there things you could do differently that may give you a better chance of reaching your goals?
- Devise a plan
Think about your goals and how you might achieve them. Decide if one of the following new habits, or a different habit, would be good for you and plan to start them:
- Monitor your expenses every month
- Draw up a budget and stick to it
- Start saving for emergencies
Reactions to daily news during times of market uncertainty and instability can evoke a see-saw of emotions, making many of us increasingly worried about our retirement savings. It’s important to not let fear and negative emotions during tough times stop you from achieving your future goals. This is the most opportune time as any to rethink how you are positioned financially.
The newly launched My Money Matters Toolkit – Other financial matters (alexforbes.com) offers individuals guided access to content and support. This financial toolkit can help you better understand your retirement fund benefits and make better financial decisions based on your personal circumstances.