How to protect and manage your money during the COVID-19 crisis

In a perfect world, we would all have emergency savings to fall back on during uncertain times. While this may not be possible for everyone right now, if there is a possibility of taking costs you might be saving because of lockdown (for example, savings on fuel or clothing), it is a good time to place it in a savings account.

Despite increased volatility in financial markets, there are solutions according to Craig Sher, Head of Discovery Invest. All of these involve patience. “At this stage, no one can predict how long or severe the economic effects of lockdown will be,” he says. We have to wait and see how things play out. “Hopefully infection rates around the world will start to reduce soon,” he adds. “We’ve had many clients ask about what the right investment choice is, whether they should switch out of the market into cash, and how this will affect long term investment plans.”

Sher says the first and most important piece of advice he can give is to not to stray from a disciplined investment plan. All market cycles experience bouts of under performance for a variety of reasons. By overreacting to short term underperformance, investors are in danger of missing rebounds that tend to follow. When the markets turn again, they turn quickly. When those around us panic, you need to avoid your behavioural biases to stay on track in the long term but bailing out at market lows is the easiest way to wreck your investment plan.

COVID 19 will definitely affect long term investment plans. How big or small this effect is remains to be seen and the truth is that you may not have much control over this. “However, what is in your control is your investment behaviour and how you react to the pandemic now. What you do or don’t do now could have a dramatic effect.”

Assurance in a time of uncertainty

Sher says retirement funds will be treated in the same way as personal investments: with cautious optimism. It is true that macro variables and events like these can have a significant effect on returns and it can be tempting to try forecast these, yet experience shows that they are extremely difficult to predict. “Not only has history shown us that trying to time the market to outperform usually doesn’t work, but switching investments during a cycle of poor performance inevitably destroys the value of your investment.“

“Although the present market moves are unnerving, we can draw valuable insights from the past. We’re exiting an 11 year long bull market in the US, the longest in history, in fact,” he says. A bull market is when the economy is stable and the market is on the rise. The bull market started in March 2009, only a year after the global financial crisis, the biggest economic downturn since the Great Depression. It’s a useful reminder that no crisis lasts forever,” he tells us.

This is a speedbump on your path

Sher shares how sudden changes can influence investments. “Over the last decade, if you as an investor in the All-Share had missed out on as little as the five best days in those 10 years, you would have wiped out about 18% of your financial plan. If you had missed on the five best days every year over the 10 year period, your investment return would be 66% lower at the end of the period. And that would be a larger negative impact than almost any market fall in history.”

He reminds us that, given how the COVID 19 pandemic affects the market, it may seem like this particular situation is different and unprecedented. “But investors have weathered all kinds of investment conditions over the course of history. While this will certainly be a memorable shake-up, it is just one of many. The deadliest pandemic in modern history was the Spanish Flu outbreak in 1918. More recently, we have seen deadly outbreaks of SARS CoV and H1N1, of which have had a big effect on the markets. Over the long term the market tends to shrug off events like these and they just become short term blips on a long investment journey.”

Sher adds that the best advice he would give a person who is fortunate to have an emergency fund and investments in place, is to remain calm.