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Picture: 123RF/JOVAN MANDIC
Picture: 123RF/JOVAN MANDIC

Financial advisers often encourage investors to remain invested. This means avoiding making impulsive decisions to cash out long-term savings in times of uncertainty and volatile market conditions to meet other wants or needs not linked to the goal you may be saving towards.

When saving for retirement, it’s important to remain focused on your long-term investment strategy to meet your retirement goal.

Understand and remain focused on your retirement goal 

Contributing towards retirement ensures that once you leave employment to retire, you can do so comfortably. But living comfortably may mean different things for different individuals. 

Your standard of living would typically dictate what may be defined as comfort and could span from solely ensuring that necessities and expenses are covered to experiencing some level of luxury such as travel plans. To meet these objectives, you would need a minimum income during retirement. Liberty Group SA refers to the required income in retirement as your retirement goal.

How your retirement savings are invested should always aim to achieve your retirement goal. More specifically, your choice of investment portfolios (and how much money you save each month and for how long) will influence your ability to achieve your retirement goal.

Since your retirement goal is unlikely to change often, caution should be taken when considering changing how your retirement savings are invested, especially when investment markets experience significant volatility.

Market conditions often drive investors to make poorly timed decisions.

Keep calm and stay invested 

Most investments and retirement savings have been affected by the pandemic. For example, March 2020 was one of the most volatile periods in financial markets globally and this was evident in the performance of many investment portfolios.

Volatility, or unpredictable movements in financial markets, is expected over the short term and it’s easy for investors to get distracted by this kind of noise in the market. It’s important to remain focused on the long-term merits of the market, which have proven themselves time and again through market recoveries.

Typically, markets tend to recover relatively quickly from losses, as was seen in 2009 after the global financial crisis. This has been the case in 2020 where drawdowns at the beginning of the pandemic were followed by quick rebounds.

Remaining invested during these market recoveries, together with the potential for future positive investment returns, is a key ingredient to staying on track to achieve retirement goals. The recent investment performance of SA portfolios shows this outcome.

How to get more information about the options available to you

If you’re unsure of how to invest your retirement savings to best meet your retirement goal, speak to a financial adviser who can advise you on the options best suited to your needs. Remember to always keep your retirement goal in mind when considering cashing out your savings or making changes to your investment strategy.

For those leaving their employers, this is likely a difficult time. If you were contributing to a retirement fund as part of your employment, you would have options available to you on what to do with your retirement savings, with each affecting retirement goals differently. 

If you are nearing retirement, there are annuity products to provide you with a regular income in retirement. One of these options is a living annuity, which allows retirement savings to remain invested, while money is withdrawn from the balance on a regular basis to provide an income during retirement. The remaining balance is, therefore, able to recover from potential future market recoveries.

The most important message for investors is to appreciate the impact of the after decisions on your ability to retire comfortably:

  • how much money you save each month and for how long you save it for;
  • choice of investment portfolios; and
  • staying invested even during short-term turbulence.

This article was paid for by Liberty Group SA.

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