The South African Reserve Bank (SARB) recently lowered its 2020 growth forecast from -7.3% to -8.2%. Their inflation forecast for 2020 was lowered from 3.4% to 3.3% and the 2021 inflation forecast was brought down to 4% from 4.3%
According to the latest Old Mutual Savings & Investment Monitor (OMSIM) – conducted between 29 May – 23 June 2020 (i.e. during lockdown level 3) – a staggering yet understandable 58% of households across South Africa are facing high or overwhelming financial stress, as the Covid-19 crises decimates savings and raises debt levels.
“In the middle of difficulty lies opportunity.” – Albert Einstein.
Our world has changed. Those who adapt quickly will look back on this as a time of great opportunity. Change pushes us to reassess and readjust our lives and that includes our financial-lives too. Whilst we are in the middle of a global pandemic, not everyone is affected in the same way, at the same time or to the same extent.
Take proactive action to restructure/reduce debt, if possible and reduce costs as far as possible.
Do not procrastinate savings. If you are starting small – opt for inexpensive and accessible savings options. Remember to increase your savings, and not just improve your lifestyle, when things start turning around. It’s all about the time in the market, not the timing in the market. The best way to decrease the probability of losing money is to invest over the long term.
Staying invested over time has the benefit of compound growth, which means that you make money on your original investment as well as on the gains made in previous years. Start saving as soon as you can, leave it for as long as you can, and reinvest dividends. Compounding is a powerful wealth generator and is reported to be the eighth wonder of the world. Albert Einstein is reputed to have said of compounding, “He who understands it, earns it; he who doesn’t, pays it.”
During 2020 we experienced periods of the lowest inflation rate in South Africa since 2004, however, inflation still remains a huge risk to savings. Most investors underestimate the impact of inflation as it corrodes spending power. It is therefore important to generate real returns over time i.e. inflation-beating returns.
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”
In closing, short-term volatility can cause investors to sell at the worst time. Research has shown that the 10 best days on the JSE occurred after periods of the worst performance. Missing out can drastically affect your savings plan.
Salima Modack – Fund & Investment Specialist Old Mutual Wealth
References/Resources Old Mutual Savings Monitor 2020, Johan Els – CHIEF ECONOMIST AND HEAD OF ECONOMIC RESEARCH, OLD MUTUAL INVESTMENT GROUP, Old Mutual Investment Group Macro Solutions Long Term Perspectives 2020
Sources: Business Tech