By John Kennedy, Regional Head of Advice at Citadel Investment Services
Fitch Ratings’s negative outlook on South Africa’s credit rating, paired with Standard & Poor’s (S&P) downgrade of the country’s credit rating has resulted in increased concern amongst many local investors around the risks and value of their investment portfolios. However, those investors with a well-considered and solid financial plan in place have no need to panic.
It is normal and to be expected for the economy to go through both negative and positive periods because of its cyclical nature. The trick is to realise that while we cannot control the external economic climate, investors can control their personal economy through sound financial planning.
Financial planning involves a long-term view, which can be challenging for investors who often view their money as one amount instead of viewing it in terms of how much they will need in the next one, two, three, 10, 20 or 30 years.
Advisors assist their clients to look at the bigger picture and show them how to allocate their money to benefit their finances in the long run. This involves a complicated process of allocating capital to the right strategies and managing the risks by making sure the portfolio is well diversified, all while taking into consideration inflation risks, ups and downs of markets, and the management of buying and selling decisions.
It’s particularly in the tougher, more negative economic environments that people can make rash and sometimes impulsive decisions when it comes to their finances. It is during challenging financial times when the true value of financial advice and a sound financial plan is realised.
When the economy takes a negative turn, a financial advisor will ensure the client stays on the right course. The role of the advisor during these periods is to get clients to look forward and not focus on the present.
The purpose of a financial plan is to ‘weather-proof’ the investor’s overall financial situation so that they can continue to live at their desired standard of living.
Advisors will be involved through thick and thin to guide their clients in realising their financial goals. Some investors may prioritise maintaining their current lifestyle in retirement, while others may want to aggressively grow their wealth, or leave an estate to their heirs. Strong financial planning is key to ensuring that negative economic activity does not get in the way of achieving these goals.
When the economy takes a knock, there is a lot of market noise and it is easy for investors to become overwhelmed and make reckless decisions that negatively impact their financial wellbeing. It is the role of advisors to guide clients to make better decisions about their finances.