Wendy Myers, the head of securities at PSG Wealth, says the recent sharp downward movement in financial services stocks has raised concern among investors.

“US-listed Silicon Valley Bank’s demise and JSE-listed Transaction Capital’s declining share price – down to levels last seen at the height of the Covid stock market collapse – have left many wondering if these events are transient or indicative of something more systemic,” said Myers.

She said that in the short term, it is best to believe that volatility is an inevitable part of investing in shares.

“We are currently in the midst of unwinding the imbalances in the global monetary system after years of highly accommodative monetary policy. This normalisation of interest rates has had a profound impact on the market since 2022, and we have been cautioning investors to expect this volatility for some time now,” she added.

Myers said that it is important for investors not to panic and try to view their portfolios more holistically. To better avoid making decisions on a whim, she said that diversification is crucial to mitigate risk.

“This begins with ensuring your portfolio includes a spread of shares across different sectors and geographies. Currently, high exposure to financial shares will put your portfolio under strain, so it is advisable to spread investments across multiple sectors and avoid having a key or main exposure to financial stocks,” said the head of securities.

Considering the risk profile of the companies that you select is another important factor. High-risk or growth stocks that once showed material gains over the pandemic years are now taking the strain.

Myers said that PSG Wealth typically only allocates no more than 5% of their total portfolio into these stocks or avoids them completely – especially if a client is nearing retirement.

The head of securities provided the following best practices when it comes to securing a stable investment portfolio in a volatile environment:

  • Reassessing risk and looking at portfolios in the context of their long-term capabilities
  • Using equities as a key asset to build wealth
  • Avoid knee-jerk reactions to market movements and avoid negative impacts through diversification
  • Work in collaboration with a financial adviser. An adviser can consider macroeconomic events and how they would impact a portfolio
  • Ensure that the stocks that you are invested in have strong fundamentals
  • Reprioritise long-term outcomes over short-term profits

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