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Monday 23 March 2020

Market Crash FAQs

The market is a wreck! 
Let’s not sugar coat it, the markets have received an almighty PK over the last few weeks. It’s been pretty brutal with nowhere to hide. Top40, S&P500, small caps, large caps, REITs, Offshore, Onshore, and every other investment-y sounding term have all been walloped.


This has meant a lot of people have seen their net worth take a bit of a hammering – mine included. I will do a proper stock take (excuse the pun) at the end of the month when I update my FIRE Tracker but I reckon the latest happenings have put my investments back to where I was 3 years ago.

Of course no one wants to see their investments plummet. And with the media in overdrive, the possibility of this getting a whole lot worse seems certain. How much poorer are we going to get?

Many people are understandably looking for something to help take the pain away, and filled with more questions than answers. As a result my Twitter, Facebook and email have been getting a fair amount of TLC.

The questions are all pretty similar, and so I thought I would talk around some of the main themes that I am seeing.

Should I change my investment strategy?

The huge drop in investment values has many people scratching their heads thinking there must be a better way. Time for an investment strategy update?

But here is what you need to ask yourself – would you change your investment strategy if the markets were still where they were at the start of 2020?

I think you know the answer to that…

Your investment strategy was based on many factors which you (hopefully) carefully considered. You gave some thought to your time frame. You considered your risk appetite and then also pondered your goals and targets.

From there you thought about how best to implement your investment strategy by tackling the many things within your control – how much you invest, your asset allocation, onshore vs offshore, reducing fees, making use of tax efficient investment vehicles etc.

Why then do you want to suddenly change your entire strategy based on the one thing which you cannot control – the level of the market? That is something that is well and truly out of your hands, and it really shouldn't be any sort of factor in your investment strategy.

So, what I am doing? 
My investment strategy says buy my chosen selection of ETFs month in and month out. So come end of the month that is exactly what I will be doing – buying the ETFs I would have bought anyway, with the added bonus of them being super cheap! So basically I get the same ETFs I would have bought anyway, but at a lower price. It's sort of like when you go to the shops to buy toilet paper milk, and instead of it costing R24 it is only R16 - exact same milk, much better price! 

I have also learnt long ago that stressing about something that is out of your control is pretty pointless. So whilst the market tanking might be disturbing, there isn't anything I can do about it.

But I have lost Rx?

Yes I am with you, it is not lekker seeing the value of your investment in free-fall. It sucks balls. It really can make you feel like you should get your money out a.s.a.p. Isn’t investing in the stock market supposed to generate inflation beating returns and make us wealthier, not poorer?

I fully understand the urge to stop the pain and sell your investments. But trust me when I say it is the worst thing you can do. As you know, in life there is nothing for nothing. This feeling of discomfort and the need to do something, is the price you pay for your equity investments to make you wealthier over the long term. People who are not able to stomach the paper losses and end up selling, find themselves far worse off than those who ride this out and continue investing despite their portfolio taking a smack.

It's not easy, but the rewards will be worth it!

Remember you haven’t lost anything unless you sell. And since you invested in equities, it means you do not need the money for many more years. So there is no need to sell now.

In investing there are only two prices that matter – the price you bought at, and the price you sell at (everything in-between is just noise). The great news is that current levels mean you have a great opportunity to lower the price you buy at, which means you will get to enjoy a better return when you do eventually sell many years from now.

So, what I am doing? 
In short nothing. The “losses” aren’t pretty to look at, but I am taking comfort knowing that I am lowering my average purchase price by buying while the market is down. But if the paper losses of your portfolio are making you uneasy, consider not checking the value of your investments for the next few months while all this blows over. Out of sight, out of mind.

This time it’s different?

Do you know what people say during every single market crash – this time it’s different. And you know what happens after every “different” market crash – the exact same thing.

Within a few years (and sometimes even months) the markets recover. In fact, returns after a crash are usually super awesome. Check this cool table shamelessly stolen from this blog post

The average 3 year return following a crash was a very awesome 88.6%, and after 5 years a whopping 132.3%. A few years after a crash, people look back and think wowziz that crash was a fantastic opportunity to get in. This time is no different!

People, the Corona virus is bad, make no mistake, and businesses and economies the world over are going to take some serious strain – absolutely! But this will eventually play out, and we will come out of this.

Business will return to normal, and the stock market will continue doing what it does – representing human progress, innovation and efficiency. And that means it will move higher.
Betting against the stock market is betting against humanity, and if you willing to do that, then you have a lot bigger problems than a stock market dropping.

So, what I am doing? 
Looking forward to expected outsized returns that will follow once the Corona virus has run its course. Over the long term, the stock market moves higher, that’s just what it does.

Which ETFs Should I buy?

I have received a number of queries asking which ETFs will be good to buy during this market crash. I think you know how I am going to answer this one – you should be buying the same ETFs you would have bought if there was no market crash.

The level of the market should not be used to determine which products you buy. That is determined by your risk appetite, views on onshore versus offshore, time frame and goals, cost etc.

So, what I am doing? 
I will continue to buy my preferred ETFs. The level of the market does not dictate what I buy.

When will we get to the bottom?

Man I really wish I knew. But I don’t, and neither does anyone else - and don’t let anyone fool you into believing that they do. 

Maybe the bottom is today, maybe next week, maybe next month. You would need to be exceptionally lucky to get the exact bottom right, and chances are if you wait for the bottom you will miss it! And while you waiting the market could be moving higher and you will miss out on that growth.

This is where buying periodically (whether that be weekly or monthly) can be your friend. Buy as you always would, then if the market moves lower, you get to buy for even cheaper, and if it moves higher then you have money invested which can benefit from that growth.

So, what I am doing? 
Predicting the future is futile, so I will just continue buying month in and month out. Rand cost averaging is pretty powerful, so I will not be holding any money back and just keep investing as I always do. I am also ignoring any fortune tellers people forecasting where the market is going to go and “The market is going to move lower” and “We are nowhere near the bottom” type articles.

Till next time, Stay Stealthy!
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