Is it safe to return to investing?.

01 June 2009 Andre Snyman, Consumer Assist

The investment markets are volatile right now, and consumers, particularly those with extensive debt, should be focussing on reducing their debt, before considering investment options.

“Consumers are in trouble. At first, it was low wage earners who were most stressed financially, but the biggest problems being experienced now are among those who earn R700 000 plus a year, according to research from the University of Pretoria,” says Andre Snyman, CEO of Consumer Assist, South Africa’s largest debt counselling organisation.

Even Vogue, the favourite magazine of the rich and famous has started two new features: “More dash than cash” and “Vogue thrift chic.” One of their ‘thrift chic’ tips: “Save on botox – cut a fringe”!

“Many consumers who were financially well-off just a few months ago are now in dire financial trouble,” says Snyman. “They dramatically over-spent and some have seen their share portfolios wiped out. Some of our debt counsellors are dealing with individuals who are millions of rands in debt.”

Not just the reckless
It is not only the reckless spenders who find themselves in trouble. Many consumers who had invested prudently now face the reality of almost worthless share portfolios and years of savings decimated.
The Economist recently ran “a lament for savers” noting that “those who have lived within their means and put money aside for the proverbial rainy day, have seen interest rates slashed. Those who built diversified portfolios, another hallmark of prudence, suffered losses in equities, property and corporates. Even those clever enough to keep their money in cash have had to fret about the security of banks.” While the over-spenders have been bailed out by governments, the careful have seen their savings annihilated.
Robert Kiyosaki, author of Rich Dad, Poor Dad, prefers investing to savings. Hendrik du Toit, CEO of Invest Asset Management said in late April: “cash is going to become an asset with a disappearing yield.”
Simon Howie of Investec noted that credit outperforms equities and should be part of an investment portfolio. “The best time to buy risk credit is when defaults peak – we expect that to happen later this year.”

Financial institutions not helpful
One would assume that an indebted consumer’s first port of call would be his/her bank. But they have not proven to be helpful.
National Credit Regulator CEO, Gabriel Davel, said in the 2008 NCR annual report that a debt stressed person should discuss how to restructure debt with their bank, but he observed: “The unfortunate reality is that in a great many instances the different divisions or product lines of certain banks are unable to reconcile their competing interests, effectively allowing aggressive debt collection by credit card or motor vehicle divisions resulting in default on mortgage repayments.”

The solution
So how do you climb out of the debt hole? If you are severely financially stressed, you need debt counselling. If you want to avoid creditors banging on the door, stop spending, take time to reflect and understand that there are no ‘sure-bets.’
In South Africa, economists warn that we’re probably heading into choppy seas toward year’s end. Liquidations are up and consumer spending has constricted, but investment banks like Investec report increasing retail investor interest. Commercial banks say they are seeing a slow pickup in savings accounts.
The only sure bet right now is to get out of debt, as fast as possible. With the expert help of a debt counselor, it is not only possible, but can be achieved much faster than most financially stressed consumers imagine.

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