The net wealth of South African households declined by an estimated R205bn during the first quarter of 2018, com-pared to the last quarter of 2017, according to the latest Momentum/Unisa Household Wealth Index report. The re-port estimated that household wealth amounted to R7 087.3bn at the end of the first quarter of 2018, R205bn lower than the adjusted figure for the fourth quarter of 2017.

Where did my savings go?

The report’s authors said the drop was principally due to a fall in the value of financial assets. These assets include households’ savings in retirement funds and annuities, which are mostly invested in shares of companies listed on the JSE, as well as in bonds and fixed deposits. This, in turn, was caused by a de-crease in listed share prices. “For in-stance, the JSE All Share index decreased from 59 504 points at the end of Q4 2017 to 55 475 points at the end of Q1 2018,” the authors said. “In real terms, this rep-resents an annualised decline of 28.0% between Q4 2017 and Q1 2018.”

“The real value of bank deposits was also

worth 0.6% less compared to Q4 2017.” While the All Bond index increased at an annualised rate of 28.4%, the report’s authors said that most of households’ savings are invested in listed shares and deposits. “This caused the sharp decline in the real value of households’ assets in Q1 2018.”

What happened to the share price?

The authors noted a number of reasons behind the decrease in the All Share index, which had reached an all time high in late January 2018.

These include fears of overheating share markets worldwide, and money leaving South Africa with the expectation of higher interest rates in the United States. “Domestically, an increase in the VAT rate and uncertainty about the impact of land expropriation without compensation contributed to a further decline in share prices.”

The authors said a decrease in net wealth was bad news for households. “Less net wealth is bad news for households, as it indicates that their estimated monthly income will be insufficient to fund their

 

standard of living in retirement, while it also means that they will have less funds available to protect themselves against emergency expenses,” the authors argued.

 

“Under these circumstances they normally revert to additional borrowing, which increases their liabilities and thus reduces their net wealth.” Remember why you’re investing. If you’re saving for a long term goal, such as a retirement, your allocation already factors in a short term market drop. A sharp fall in stock prices, as we’ve seen recently, is usually accompanied by scary news headlines and red numbers. Modern media wants clicks and atten-tion, and, unfortunately, fear sells.

Stay calm and make smart decisions to support your longer term goals. You knew there would be days like this, and planned for it. If you’re tempted to take action remember that, as with many things in life, making decisions in the heat of the moment is probably not a good idea. Investing is no different. The more you check your account, the more likely you are to see losses, and subsequently do something in reaction to a near term drawdown. And reacting to market draw-downs are likely to hurt your returns over the long term.

Other Experts Agree: Stay Calm, Do Nothing

Listen to what some of the most respected consumer advocates in personal finance have to say:

Jason Zweig, an esteemed columnist for The Wall Street Journal, put together a 2015 list of what not to do. Read it for

 

 

yourself, but here’s an over-view, put more positively:

• Turn off the news.

• Stay calm; don’t panic and sell.

• Use this as an opportunity to diversify.

• Remember that what matters is the outlook for the future, not a “correction.”

• Ignore most commentary; no one knows what will happen next.

Ron Lieber of The New York Times knows what this feels like and puts forward six excellent points to consider:

• This drop is nothing compared to the gains the market has seen in the past six years.

• These portfolios were constructed when you weren’t anxious.

• You (should) have plenty of time to recover.

• If you’re worried about panicking, it’s better to reduce your risk (say, by 20% stocks) than to move to cash. Just know this likely means you’ll need to save more.

This is completely normal. This is what markets do.

Cass Sunstein, author of Nudge and an experienced investor in his own right, recommends to “have a diversified portfolio, consisting in large part of low cost index funds, weighted toward equities; add money as you get it, and diversify it as well; keep the cash you need; and otherwise hold.”