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A financial plan is an anchor in stormy seas

Even more than usual, so many things happening in the world are out of our control – riots, Covid, lockdown, load-shedding, flooding and other extreme weather events, to mention a few. In this context, a financial plan anchors our expectations and responses even more than usual,” says Andre Tuck, Senior Investment Consultant at 10X Investments.

“The stock markets are out of anyone’s control. They latch on to different themes and stories on a daily basis, turning this way and that,” says Tuck. “But we can control how much we watch and worry about the minutiae of market movements.”

He adds that investors can control their vulnerability to stock market volatility to some degree by investing in well-diversified index funds, which “will give wide exposure to the market while limiting stock-specific risk”.

Tuck says that even the most expert of experts don’t know what is going to happen next. “Is inflation a threat or not? Will the Fed raise interest rates sooner rather than later? Have we seen the peak growth rate in the economic recovery? Value or growth? Gold or crypto? Is the rand getting stronger or weaker? Local or offshore? Nobody knows.“

With so much uncertainty all around at us, at home and abroad, he adds, all we can do is control our own behaviour and how we respond to situations.

On a personal or social level there is much we can do, says Tuck. We can do our bit to help those in need, we can maintain safe practices, we can adopt sensible habits that lower our personal risk, we can individually become environmentally conscious, and so on.”

He adds that people should be mindful to “try not to get overwhelmed by emotions and panic”. One way to avoid panic is to stay informed about the issues, while being very selective about the sources of information we read, believe and share.

Tuck adds that when it comes to our personal finances there is much we can control in the short as well as the longer-term.

“A lot of clients are asking me how they should respond to all this new uncertainty, what they should do. My answer is almost always the same: ‘Stick to your plan’.

Tuck adds that that savers and investors can control how much they save and for how long, what fees they pay, how they invest their money and who they invest it with.

“Importantly,” he says. “we can control how much we focus on day-to-day market movements, and how we react to them.” Here he emphasises: “We do not react to them!”

Tuck adds that an excellent way to improve our sense of control is by having a financial plan and sticking to it. “Your investment strategy should explicitly factor in the possibility of unexpected events, and be designed to succeed in bad times as well as good.”

By investing your savings in a well-diversified index fund, you will own a slice of all the top performing stocks in the market, which will give you a buffer against a sudden shock in a sector or a region.

“It will take a lot of the uncertainty out of uncertain times, says Tuck. “Indexing really comes into its own in times of unexpected upheaval, which seems to be almost the ‘new normal’.”

When upsetting things happen those who have a proper financial plan in place can remind themselves that their plan provides for the unexpected.

“A financial plan anchors our expectations and responses,” says Tuck.

The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP.

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