Avoid financial advice from friends and family
Considering that the Johannesburg Stock Exchange lost almost 10 per cent of its value in a single day last month, many who were considering investing may be more cautious and confused than ever.
During the coronavirus pandemic and lockdown, there is a tendency for confusion to reign and for people to feel disorientated.
Those holding investments such as shares will have watched the global rout with growing alarm.
Considering that the Johannesburg Stock Exchange lost almost 10 per cent of its value in a single day last month, many who were considering investing may be more cautious and confused than ever.
Should you take the advice of friends and relatives who could be calling with “never-to-be-repeated” tips and recommendations and forwarding “inside information” via social media?
“Be cautious,” said Sarah Nicholson, commercial manager of personal finance website Justmoney.
While your loved ones may have the best of intentions, if you react without careful consideration at this time of uncertainty, you could lock yourself into a dire financial position, she said.
“Each person has specific personal finance needs and responsibilities they have to meet. A 20-something graduate embarking on a professional career has very different needs to a parent with children and a mortgage.
“A young person has time to ride out market fluctuations, while a retiree is generally far more risk-averse. Individual considerations should be factored into a holistic assessment.”
Nicholson said that asset highs “bubbles” and crashes are nothing new.
Read: There’s no better time to take control of your finances
In Holland during the 17th century, prices of fashionable tulip flower bulbs reached extraordinarily high levels before they collapsed dramatically in February 1637.
Another example is the dotcom bubble of internet-related companies in the late 1990s.
Making matters worse, we are now in the era of fake news, which is far more likely to be retweeted than true reports.
At a confusing and worrying time like this, contacts may pass on what they consider to be a never-to-be-repeated chance to notch up an exceptionally high return.
Remember this is called speculating, versus investing, when you aim to get a satisfactory, less risky return on your capital.
“If it sounds too good to be true, it probably is,” said Nicholson.
“Time in the market is generally far more important than timing. Time in the market means you buy and stick with your investment until you reach your goal, or the original reasons for buying that investment change.
“Timing, on the other hand, tempts people to jump out too early or stay in for too long. Frequent trading will also rack up fees and costs that could make a dent in any returns.”
“For those who already have investments, check in with your financial advisor about your concerns. In general, keep calm and stick to your plan, continuing to pay your monthly contributions if you can afford to.
“For those who want to start investing, many assets could indeed be undervalued – but don’t make decisions based on advice from people who are unqualified to offer it.
“Consider your personal circumstances and goals, your appetite and tolerance for risk and the length of time you plan to hold an investment. Preferably do this with the advice of a financial advisor, then select tried and tested products from reputable financial organisations.”
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