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Volkswagen: A time of crisis for investors

As featured in IFA Magazine by Carl Drummond, Wealth Planner at Sanlam Wealth Planning

Volkswagen, Audi and Porsche – some of the world’s most iconic, global brands (operating under the one company) – have triggered the biggest scandal in the car industry’s history. The consequences of the emissions debacle have been – and continue to be – far felt, causing untold damage to corporate reputations, sending VW share price tumbling and, now, triggering a heavy sales hit for the group. Inevitably, given how the financial markets work with volatility, investors in the industry will also be left picking up the pieces.

The US Environmental Protection Agency triggered Volkswagen’s dramatic fall from grace when they found that some diesel cars were fitted with devices that could detect when the engine was being tested and could change the car’s performance to improve results. Audi then admitted that 2.1 million of its cars were also fitted with the device. And then Porsche, SEAT, Skoda – all brands owned by VW – followed suit.

Few people could have predicted the dramatic turn of events that has transpired over the past few months. During this time, VW’s name has been so badly tarnished that the company lost a third of its stock market value. And the revelations keep coming, with new chapters expanding on the extent of wrongdoing seemingly being written every day.

However, it is unexpected events such as these which will serve as a reminder to many investors to pause and take stock of what they are actually invested in, and how the risk involved can materially affect their money. Corporate news like this affects different types of investment and advisers need to ensure that they are encouraging clients to look under the bonnet of their investments.

Scandals such as VW gives them the opportunity to look at what made them make their investment decisions in the first place, and why they did/didn’t choose to work with a financial adviser to assist the management of their money. Whether you have a small or a significant sum to invest, there is always lot at stake, and investors must be invested appropriately, according to their attitude to risk. Wealth planning is ultimately all about being prepared for the unexpected events, helping clients to save for the future. When it comes to risk, financial advisers analyse what is in front of them and are there to assist in making decisions which are considered, balanced and appropriate.

Financial advisers don’t pretend that they can predict the future. They don’t know what is around the corner for stock markets, nor do they know which investment providers are experiencing problems behind the scenes. They are not clairvoyants. But what they do know is how to help each of their clients grasp a clear understanding of how their own investment opportunities work, and can advise on the potential risks they are taking with their existing investment choices. This means ensuring their clients understand the possibility of market crashes on individual share prices, their exposure to certain stocks or sectors and therefore any likely impact and how long it could take for the investments they currently hold to return to their original value.

No investor should feel worried or confused about how their financial portfolio is performing when bad corporate news hits the headlines. Ultimately, the most important thing is that they understand the risks involved with their investments. For many investors, it may be worth taking financial advice to formalise and help inform this understanding.

Read the publication here. (Please note this link will take you to an external website).

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.