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Personal Finance

Stay calm and wait out the crisis if you are a long-term saver

The Covid-19 pandemic is a global health crisis and may be the biggest challenge that we have faced in our time
The Covid-19 pandemic is a global health crisis and may be the biggest challenge that we have faced in our time. FILE PHOTO | NMG 

The Covid-19 pandemic is a global health crisis and may be the biggest challenge that we have faced in our time. This health pandemic is creating a drastic and devastating impact on the social, economic and political scene in Kenya.

Disrupted businesses, volatile markets, uncertainty on the extent and length of lockdowns and severely strained business and government finances, are taking a toll on the country.

Whilst the government is to be applauded for the measures that have been put in place to prevent the spread of the virus and to cushion the economic disruptions arising from the pandemic thus far, it is clear that there may be more pain to come before we can start getting back to normal.

For those who may be wondering how all of this affects their long-term or retirement savings and whether they should do something about it. This article is for you.

Like the global financial markets, Kenya’s local financial markets have taken a hit, with the Zamara Kenya Equity Index and the Nairobi All Share Index recording a decline of 27 percent and 21 percent respectively during the first quarter of the year and the market now trading at historical lows.

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There is bound to be fear amongst savers which can cause the less informed savers to make rash decisions which they could regret in the long term. But we, at Zamara, want to tell you not to panic.

This downward trend, like any other, will not last for long. For example, during the 2008 global financial crisis, the NSE 20 Share Index in Kenya fell by 25percent over the second half of 2008 and the share index saw a gradual bounce back starting May 2009 and had a peak level mid-2010.

The long-term nature of retirement savings will ride out the short-term fluctuations in the value of shares.

But let this generational guide, help you get through this frightening period.

Millennials (those early in their career)

Remember: saving for retirement and pension is for the long-term and it’s important to stay disciplined with your regular savings. Over the long term, through your working lifetime to retirement, you are likely to experience shocks and recoveries more than once so embrace this shock and understand that this will not have a big effect on your pension when you are ready to retire in over 30 years from now.

Historically, big share market crashes have bounced back and recovered, and it’s no different this time.

For those who have stable jobs and have not started investing or saving for their retirement, this is a great time to start with bargain prices in offer for shares in our financial markets.

Gen X (those who are in their mid-career)

You will see your savings earn lower interest rates or drop in value and this would be painful to many of us. But keep in mind the end goal which is to have saved enough for retirement. Most of us at this stage have ample time until we retire and use our savings and thus, enough time to recover the losses made from this pandemic. Many people at this stage will have thought of changing their investment portfolio to a more conservative one but doesn’t!

If you have the ability to change or switch your portfolio from an aggressive one to a more conservative one and you are thinking of it then don’t switch.

By changing your investment portfolio mid-way to more conservative investments, you will simply lock-in the losses made from the pandemic (through loss of value in shares) and miss out on any gains when the financial markets recover.

Now is the time to consider saving more if you are able. If you have got spare cash from all the social distancing, you could consider increasing your pension contributions and other savings to help make up for share market losses and benefit from the recovery that is likely to come about.

Baby Boomers (those who have retired or are about to retire)

Remember, your retirement date is not your end date. You probably have other savings and could wait until markets recover to start drawing out from your retirement pot.

Depending on when you plan to retire, you may have to consider taking a lower income or retiring later. At such a time, it is best to seek financial advice from experts to see what options you have to protect your savings for the short term.

No matter where you are on working life timeline, the advice is broadly the same. Don’t panic, wait this out. Stay safe and quarantined. Also, remember, your health is the most important; otherwise you will not have a life to enjoy all your savings.

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