I’ve had quite a few questioning emails, messages or conversations with more than a few of you over the past month or so, about if everything is about to collapse in the country and you’ll lose all your money. Some of these concerns have also arisen from the sensationalism written by a couple of journalists in the press. They are just humans writing and need their articles published. They are not necessarily always correct. I once had an article published by Bruce Cameron in Personal Finance and another published in an industry magazine. Doesn’t necessarily mean I was totally correct or that everyone would agree with me. Let’s remind you what your money owns, where it actually sits.
Remember what I talked about in my series earlier this year about how unit trust funds work. Through your unit trust funds you own shares of some very good companies. For you to permanently lose this money, the companies will virtually need to collapse and be liquidated and put into business rescue. This means you will no longer be able go to Pick ʼn Pay or Woollies Food or pay your Mnet subscription or buy Johnson & Johnson plasters or Nestle hot chocolate or go to a Netcare hospital and your local Clicks store will also have closed.
Now why would these stores close and all these businesses go under when you and I and Bob next door continually spend our money at them? And when you’ve taken your money out of your investments you will have it in the bank – oh, but your bank went down too – or in a shoe box. But then you will still go to Pick ʼn Pay to buy your food and your Johnson & Johnson baby powder. So the companies you used to own through your unit trust funds, are now still getting all your money but you just don’t own them anymore. My point is that 30 or 40 million consumers will continue to spend their money at these places and they are not going to collapse. Yes, the high end consumer products might battle because the top half-a-percent of the spending population is the sector that can afford to emigrate, but neither would all of them emigrate anyway. So the high end housing market might battle a bit or the sales of very expensive cars might decline. On the issue of some of our money sitting in Government Bonds: I’ve often had long talks to asset managers and consultants about how secure these bonds actually are. There is a lot of foreign investing into these high interest rate assets, so they have to be kept secure.
We’ve been through panic times before: The credit crisis of 2008; Marikana; the 94 elections; Boipatong; and for those old enough, I’m sure the Rubicon Speech also might have been one. All these events or tragedies created a lot of worry amongst people and uncertainty on the stock markets. But the companies continued and the markets continued.
A week or so ago I spent an hour with my consultant from Coronation. A great guy. We always have very good conversations. He is one of those people who likes to ride his bicycle from the Drakensburg to the sea. Anyway, he was telling me that the ‘big four’ banks have recently approved loans to the value of 34 billion Rand for private electricity generation. Which is great. An obvious need. A positive thing for the future. However, I asked him why the banks have so much cash to lend out. His response was because of the amount of money people are leaving to sit in the bank.
Unit trust funds, owning shares of good consumer companies, are a very safe place for your money to be. Potentially safer than giving it to the bank to lend out.