Risk tolerance vs your investments goals – a personal journey that needs to be explored

By Martin Riekert, Executive Head: Momentum Retail Investments

Martin Riekert, Executive Head: Momentum Retail Investments

How can a debit order help you to survive a pandemic and the threat of a war? With a potential war in Europe as Russia invades the Ukraine, the rand sharply dropped and investors hastily dumped riskier assets. A global movement just impacted your investments. Zooming in, you are getting close to retirement and have become concerned that your aggressive investment approach will negatively impact your golden years, you want to switch. A personal movement just impacted your investments. 

Whether it is macro-economic forces, or more micro changes to your own personal life, these can all affect your investment and insurance policies. Even though economists expect the current market volatility to subside, the pandemic has changed the investment and insurance world in the long-term. Add on the possibility of a war in Europe and you have a recipe for perceived risk that many investors are not prepared to deal with.

The best and easiest way to ensure you stay invested and on track with your investment goals, is to be disciplined and invest an amount every month. The easiest implementation is to create a debit order that goes off your account every month before you start spending on unnecessary items. 

Understanding your risk tolerance and appetite for risk is key

Risk is an important element to consider in the investment process. However, not everyone shares the same tolerance for risk – a measure of an investor’s ability to comfortably stomach losses. Market changes and material changes in your personal life (changes to your health, dependents, financial situation, etc.) can affect what you require from your investments. 

Considering this, it is critical to have a discussion with a financial adviser to keep them updated on your current situation, both financially and personally. Separately to the market changes we have seen, clients’ personal circumstances, dependents, health, and many other factors may have changed, and this can affect their appetite for risk. You need to disclose these changes to your financial adviser, so they can make any required changes or disclosures related to your policies.

The right questions get the best answers

It is important to discuss all possible changes with your adviser. It may help to bring up hypothetical scenarios to find out how you and your adviser would react to potential, yet realistic, outcomes. 

Your financial adviser is part of your journey to financial success and you should build the relationship between the two of you. You are welcome to ask any relevant questions that you are worried about, whether it is any of the below:

  • What happens if there is a market drop? 
  • Will I have cover if I get retrenched? 
  • What if war breaks out overseas?
  • I am about to retire, how do I treat my investments?
  • What happens if I fall critically ill?

In all these instances, your adviser should help you to find solutions that you are comfortable with. But make sure to stick to your goal, and stay on the path that you have agreed on with your adviser. That is why I always encourage clients to make it easy for themselves and have a debit order in place.

Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za