24 Juni 2020 | Geschäft
Keeping a cool head in Covid times
Aimee Langford is the actuarial head of Alexander Forbes Namibia. As an expert number cruncher, she sheds light on market volatility, retirement nest eggs and responsible choices in tough times.
It is very unlikely that you will ever make up any savings you cash out or stop making now.
AL: While it is true that we saw significant investment losses in March, and continued market volatility since, the effect that this had on retirement savings may actually be less significant than a lot of people think.
Initially, we heard reports of over 30% market losses in the third week of March. However, the impact of this initial shock was temporary. By the end of March, the investment losses on most investment portfolios used for retirement savings were between 6% and 8%.
Further, we continued to see market recovery in April to the tune of 8.5% on average. So that initial shock was short lived.
What we each need to remember is that retirement savings are long-term investments – they are exposed to more risky or volatile investments as we expect to earn higher returns on these investments in the longer term.
We should not become fearful of short-term shocks, as markets will recover over time. What each of us should guard against is making any rash decisions based on short-term events.
For example, if you had decided to move all of your investments into money market or cash-type investments shortly after the reports of significant losses in March, you would have forfeited the recoveries made shortly after, and this would have had an immediate detrimental effect on your savings.
Further, when you invest in cash or money market products, you give up potential savings growth for short-term security, which is not appropriate when your retirement is a number of years away.
B7: Most ordinary Namibians find the investment world intimidating. Please explain what is happening in layman’s terms.
AL: Looking beyond the initial effect of the pandemic, we are now seeing the effect that lockdown and other regulations have had on production and economic activity in general.
Many businesses struggling or unable to keep their doors open and staff employed. With no definite indication of when restrictions will be lifted and normal trade will resume, and, importantly, when foreign investment will start flowing in again, there is little appetite to start new businesses.
The result of this is a shrinking economy, and with a poor economic outlook comes poor investment performance. This will impact retirement savings as people will not earn as high returns on their savings as they initially expected.
It is unclear how long the impact will last.
History has shown us that investments recover about three years after a market crash or recession, and we can only hope that that the same will hold true for the present crisis.
What is important is that you are ready to take advantage of the market rebound when it occurs.
This does not mean that you need some clever investment strategy or need to know when markets will turn around before the rest of us do. It means that your retirement savings should be invested in a well-diversified portfolio.
If you are invested in only one type of asset or shares in a single company, you are very likely to miss out on a market rebound, as you will not have enough time to change investment to take advantage of any sudden growth surge. If you are invested across many asset classes, including equities and property, both locally and offshore, you will already be in a position to take advantage.
Balanced investment portfolios aimed at retirement savings are already set up in this way, and so you would do well to keep your retirement savings where they are. It may seem strange to do nothing in these times of uncertainty and fear. However, when it comes to long-term investments, sometimes “doing nothing” is the best approach.
B7: Many people have lost their jobs and are contemplating cashing in the pensions. Those who have jobs, but had to take salary cuts are thinking of decreasing their retirement plan contribution. What is your advice to them?
AL: There is obviously a short-term benefit to decreasing retirement contributions or cashing in pensions now, that being to have enough money to cover your expenses.
However, there is a definite long term disadvantage – that you will not have enough money to see you through retirement.
Unfortunately, it is also very unlikely that you will ever make up any savings you cash out or stop making now. This is because, when people are faced which decisions involving trade-offs between short-term and long-term benefits, we most often opt for the short-term benefit. This is true even in cases where the long-term benefit is avoiding definite suffering, as would be the case if you do not have any savings to retire on.
We probably act in this way because it is easier to understand how we will be affected by something now than something which will only happen years from now. So when faced with the decision every month to save a little more or spend a little more, we will choose to spend.
B7: You specialise in actuarial science. What does that entail?
AL: As the head of actuarial at Alexander Forbes Namibia, I lead a team which provides actuarial services to retirement funds and companies. This includes mainly analytical work in actuarial valuations, accounting valuations and benefit projections.
We also receive ad hoc requests for investigations and various other calculations from our clients, which require problem-solving skills, as there often is no template or set formula for us to use and we need to derive solutions ourselves.
You won’t find me stuck behind my PC every day, however.
I often have to present valuation results or investigation findings, amongst others, to our clients – this is the more challenging part of my job, as I am not a natural public speaker. That being said, I believe any good job should challenge you and help you grow both in a professional and personal capacity, and so I am grateful for the opportunities that this job affords me.
B7: What is the greatest lesson you’ve learnt in your work so far?
AL: I have learnt that it is often our beliefs about ourselves or the environment we operate in shape our attitude and behaviour, which in turn reinforces the belief.
So if you believe you are shy and poor at public speaking, you will feel uncomfortable addressing a group of people and will likely perform poorly. If you believe someone does not like you, be it a colleague, a manager or a client, you will likely put up walls or defences that hinder the relationship. If you don’t see a future for yourself in a particular job, you won’t commit to doing the work to the best of your ability and probably won’t be in that position much longer.
As soon as we are able to recognise that our own beliefs hinder or limit us, rather than some external factor, then we are empowered to take action. I have found that small actions or changes can make a big difference. It can be as simple as listening to colleague or client and taking time understand their needs and challenges.
B7: What is your advice to financially struggling Namibians?
AL: Don’t underestimate the power of a short-term savings account. If you save just a small portion of your disposable income each month, then you can build up funds for emergencies or unexpected expenses, like a car repair or a family funeral. Using you own savings means that you do not have to make use of micro loans or short-term debt, which can be very expensive.
If you are able to save 5% of your income, after two years you will have more than two month’s income saved – this could potentially support you if you unexpectedly lose your job while you are looking for work. This way you may not need to cash out your long term retirement savings when you are between jobs.
If you start saving when you are young it becomes a habit which you will probably continue with the rest of your life.
If you have a large amount of debt or any other monthly instalments, such as rent, that you are struggling to pay under your current circumstances, you can try to negotiate different terms to allow for a temporary easy in repayments. With the large decrease in interest rates since the beginning of this year, repayments on mortgage loans can also be restructured, freeing up some of your money each month.
Further, if you are renting, it is a good time to look around at other similar or smaller places and compare prices – rent prices are very low at the moment and you could find a better deal. Any option to decrease spending should be explored before deciding to decrease saving.