| In the last month, and picking up speed last week, my clients are very worried about their portfolios, especially when they are in, or approaching retirement. Let’s take a breath for a second and get some perspective. Sure, thanks to Trump’s bazooka approach to trying to solve decades of US problems in his first 100 days, the US markets have done a spectacular face plant – but don’t panic. I prefer for my client’s portfolios to hold a mix of asset classes – but that is because most of them are in that pre-retirement or retirement class where that is the prudent thing to do. Trying to time that market, sell before you lose too much, is called trying to ‘catch a falling knife’ because unless you are very lucky, there are far better odds that not only will you miss the catching the knife, or you could catch it by the blade and all you have is blood on the floor and a trip to the ER. I understand, losing money in the market is painful and stressful, and that anxiety can make you feel really rotten, but at the risk of repeating a well-worn homily, until you sell, those are just paper losses. It’s like trying to time your ‘ripen at home’ avocado. Over a period of days, it goes like this … hard, hard, hard, softening, ready in 10 minutes, oops, black and squishy. Sometimes the best course of action is to pour yourself a stiff drink and chill, because this too will pass. It is the asset allocation of your investment that is going to appropriately protect it from capital erosion in the short and long term. It is this capital erosion over time that you must be most concerned with. The biggest investment for most people in their lifetimes is their retirement pot, so let’s use that as an example. At retirement that capital will be converted into a portfolio that generates an income for you (and there are numerous ways you can do this). I won’t go into retirement investment which I have written about extensively, but you can read them here and here. If you erode that capital at any time in your retirement, because you are taking too high an income, or must dip into it for ad hoc purchases, it is going to have a significant impact on the longevity of that capital and its ability to produce the income you need at retirement. Here are some pointers prevent the impulse of selling out in a market correction: 1. Have a clear plan, preferably written down, for all of your investment pots, with very clear time scales, income objectives etc. A one sheet summary helps. I encourage my clients to print and file this in their RedFile (still available from me, free of charge, just ask). Your financial advisor will probably do that for you, but if you’re flying solo, then that’s a vital part of your skill set that you need to nurture. So, what if you don’t make a plan? Let’s look at the difference between a natural ecosystem, and a farm. That ecosystem, usually beautifully balanced (if we humans haven’t interfered) but they are not only fragile – but can take decades or centuries to develop, failing multiple times along the way. Humans can no longer be hunter-gatherers, and need farms to produce their food, so they have learned to ‘hack’ nature over centuries. All our vegetables have evolved over time using ‘selective breeding’ to produce the large veggies we are so used to – mostly by making them larger, and more resistant to the pests and diseases that come from ‘monoculture’. Image: Some of the Wild wheat that wheat as we know it today has been developed from over the centuries A farmer wouldn’t dream of going onto a piece of land without a very clear plan as to what they are going to do, what ‘assets’ (fruit, veggies, farm animals) they are going to use, when they can harvest (timing), what crop rotation or companion plating is needed (diversification) or what ‘artificial’ inputs are needed- irrigation, fertiliser, weeding etc. (asset and financial management). 2. Clearly understand the cost of your lifestyle. Having been in the financial advisory field for a long time now, I am never ceased to be amazed how two people, the same age, earning exactly the same, but not only have completely different income expectations at retirement (often different by several multiples) but (unsurprisingly) their lifestyles are way different – and the costs, like the income, at different ends of the spectrum. It’s like comparing farming watermelons or dates. Watermelons, unsurprisingly, require loads of water, space and they get damaged by pests and diseases quite easily – and the fruit while large and sweet is not ‘nutrient dense’ and is mostly water. Dates, on the other hand, require very little human input, they just have to be planted in the right place, and will, eventually, produce one of the most nutrient and calorie dense fruits on the plant, and last on the shelf for months. Avocados, are pretty close to a ‘perfect’ food from a fruit perspective – as is coconut – again – at either end of the ‘high maintenance’ spectrum. Without sounding judgmental (but you are looking for advice after all) how ‘high maintenance’ your lifestyle is, is going to directly impact your long-term wealth. You’ve watched me write about the ‘wealth equation’ often – Income minus consumption equals wealth. If your high maintenance lifestyle is chewing up your income, it should not surprise you that your wealth has also been eroded. The sooner you rebalance that equation the more your future self will reward you. How do you do that? Do a personal income statement and balance sheet (available in my free Redfile pack) and find out where the weaknesses lie. Have a plan to get rid of debt, including scheduled ‘extra’ payments every month – starting with the highest interest first (usually credit cards). Start with the big-ticket items and see if you can bring them down – like medical aid for example, short term insurance or life insurance. 3. Pick your asset class mix carefully. Each asset class has its own merits, different tax treatment, different cycles – and they each have their role (another skill set you will need to learn if you are flying solo). There is no room for emotions in investing. Investment assets are like plants – you give them the right environment to thrive, but no amount of cajoling, gilt-tripping or outright beratement is going to change their trajectory. If they aren’t meeting the objectives then they must be ‘fired’ (don’t worry, they are going to find another home out there – for every asset sold, there is usually a buyer). This is tough when you’re going solo, we professional investors don’t have the same emotional attachment to assets – they are there to do a job, and we nurture and protect them so they can do that, but when they don’t… it’s Caio Bella. Articles and Blogs: Income at retirement NEW 2025 Budget NEW Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Keeping your legacy shining bright Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |
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