With financial markets being stretched and interest rates being cut to manage a possible downfall, consumers are likely to become frustrated and panic about their investments. Sue McLennan, financial planner at BDO unpacks what it means to invest in an unstable market, distils the excuses made for irregular and bad spending by consumers and further advises on how consumers can invest better.<\/p>\n
Financial markets are on the verge of collapse, with many businesses under pressure to perform with the uncertainty of Covid-19. Additionally, Eskom remains power constrained and consumers are more financially distressed than before.<\/p>\n
In times like these, it\u2019s easy to panic and make poor financial decisions based on a media headline instead of evaluating your financial life rationally, says McLennan, who unpacks three of the most common excuses she hears for not planning financially for the future.<\/p>\n
#1: There\u2019s no point investing: our economy is in recession, we\u2019ll probably be downgraded and the value of the rand will fall<\/strong><\/p>\n It\u2019s important to know that a negative GDP doesn\u2019t mean negative market returns.<\/p>\n As for the rand, remember that any floating currency is by nature unstable. It rises and falls based on speculation, rumours, natural disasters and everyday supply and demand. A Moody\u2019s downgrade would certainly mean lost investment opportunities, and we\u2019d also see an increase in capital outflows.<\/p>\n But that doesn\u2019t mean rand-based investments have no value. More than 50% of South African companies listed on the JSE are multinationals, so you will automatically have exposure to international markets.<\/p>\n In fact, there\u2019s currently strong demand on the global market for SA Government bonds, which are giving investors good returns.<\/p>\n If you want to hedge your risks, consider a foreign-denominated currency product as part of your overall investment strategy. It\u2019s important to understand that more than 50% of South African companies listed on the JSE are multinationals, so you will automatically have exposure to international markets anyway<\/p>\n #2 The markets are too volatile right now. I\u2019d rather hang on to my cash<\/strong><\/p>\n There\u2019s nothing wrong with having cash reserves. Perhaps you need them in an easy-access account for emergencies.<\/p>\n Or perhaps you want a fixed deposit with your local bank. But don\u2019t discount market investments during periods of intense volatility, as you may be able to enter the market relatively cheaply with good prospects for long-term returns. It\u2019s like buying good quality items on a sale instead of waiting for the full priced item.<\/p>\n #3 I can barely make ends meet. How am I supposed to start investing?<\/strong><\/p>\n Most people struggle to save, irrespective of what they earn. Somehow, lifestyle gobbles it up.<\/p>\n Before you decide you don\u2019t have enough money to invest, ask yourself whether you\u2019re falling prey to distractions:<\/p>\n We like to advise people to treat themselves as their own dependant: \u201cpay yourself first\u201d. That means, see investing as a \u2018reward for effort\u2019 and make sure that your debit order for your investments is paid before any expenses are deducted. This debit order should have an inflationary increase and be reviewed each year.<\/p>\n Remember: compound interest will help you achieve growth on growth. It\u2019s never too late to start saving.<\/p>\n Stick to your long-term life goals and investment planning objectives and do not let all the noise and hype about what is going on around you change this.<\/p>\n Take advantage of the tax breaks on offer, like retirement annuities and tax-free investments, and make sure you have an annual wealth check-up with your financial adviser to see how you measure up against your lifestyle objectives.<\/p>\n\n
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