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Thread: Dumbest recession moves

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    Join Date
    Nov 2007
    South Africa
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    Dumbest recession moves

    Lately, we'd rather save than spend while even the rich seem to enjoy hunting for a good deal and bragging to friends about it. Consuming conspicuously, previously almost thought of as de rigueur, is now frowned upon and considered in seriously bad taste. What's the story? It's not official yet, but the new South Africa is almost certainly in its first ever...I'm almost too scared to say it; the 'R' word makes people do such dumb things…

    A booming economy is very forgiving of stupidity, but in these uncertain times being dumb with your money won't go unpunished. It's almost a given; recessions make otherwise intelligent people do very silly things, thereby making their financial worries worse than they could've been.

    Nobody is fully recession-proof, but to minimise the impact here are a few moves you should not be making right now:

    1. Sell your shares

    Smack yourself as hard as you can if you're thinking of selling your shares to place the proceeds into a 'safe' money market account. For the long-term investor the money market is the riskiest investment you can possibly make. How can I say such a thing when your capital is guaranteed and you're receiving a bit of interest? The answer: inflation. The returns you get for putting your money in cash are barely in line with and more often than not below inflation.

    Sell high, buy low; ever heard that one? Selling when the market is down turns a 'paper loss' into an actual one.

    If you're making investments for the long-term (longer than, at least, five years) you should not get spooked by market volatility. If you have a well diversified portfolio, you'll do well to stay the course; only change your strategy if your own circumstances or goals change.

    While the stock market is very volatile over the short- to medium-term, its trajectory over the long-term has always been up. In fact, the stock market has never lost value over any ten year period in its entire history. Ever! Over longer terms there is no risk whatsoever that a well-diversified portfolio of stocks will lose any value. It is, obviously, possible to suffer short term losses but for those in it for the long run these losses are completely irrelevant.

    Over the long-term no other asset class has ever performed better than stocks and those who ride out the bear markets are always rewarded for being patient and staying cool under pressure.

    Since 1960 the JSE has plummeted by more than 30 percent a total of seven times. Every time the outlook was apocalyptic, but each time prices recovered. Research conducted by Nedgroup Investments shows that if one looks at the South African stock market's total returns over monthly intervals of rolling five-year periods since 1961, not one of the 493 such periods was negative.

    It's normal to panic, but if you act on that fear, by selling shares you bought as long-term investments, you will damage your wealth in a way that no market crash, no matter how prolonged or severe, can ever do.

    2. Raid your pension

    Raid your pension and you will never recover. Not only will SARS punish you mercilessly if you cash it in when you quit or lose your job, but you'll be locking in the spectacular losses we've experienced of late.

    Research shows that only 10 percent of members of South African retirement funds will be financially secure in retirement, the main reason being that members don't preserve their fund benefits when they change or lose their jobs.

    3. Quit your job

    You might think your job sucks, but right now is not the time to take having one for granted. No matter how much you hate your job don't quit until you have another one in the bag.

    4. Go into debt for any of the following

    * Weddings — How do you justify borrowing R50 000 for a huge wedding when you can't even afford a deposit on a house? Keep the number of guests down to what you can afford to pay cash for. Ten years down the line you'll be richer and, when you look at the pictures, you'll be able to remember all your guests' names.

    * Holidays — You have to be pretty thick or stark raving mad to finance a holiday during times like these. By the time you need your next break you'll still be slaving away to pay for your last holiday. You work hard and deserve a break, but in recessionary times you shouldn't be borrowing to go on vacation.

    * Shares — Borrowing money to buy a 'hot stock' is dumber than dumb. If you borrow money at the current prime lending rate of 13 percent, the stock has to go up by at least that much for you to break even. If the stock does not live up to the hype, you're stuck with the depreciated asset and the debt you owe the bank.

    * Financing for cosmetic procedures — Contrary to what you'd expect during a recession financing for procedures like Botox, liposuction and face lifts is booming as many beauty therapists or cosmetic surgeons now offer in-house credit to customers who can't pay cash. Utilising this option reflects poorly on your credit report, pushing up future borrowing costs. If you must go under the knife do it debt-free or wait until the economy improves and your job is more secure.WHOOOPS....but they are so nice, big and bouncy.....

    * Buying a new car

    Going into debt to buy a new car will deal a massive blow to you financial fitness. In addition to the hefty price tag you'll also be paying a lot of interest while having to contend with substantial depreciation. If you must buy a car, buy used. Click here to learn why smart money buys used.

    * Clothing, groceries, jewellery, electronics, etc.

    5. Chuck your insurance

    It's very tempting to cancel insurance policies when times are tough and South Africans are doing so en masse. Don't do it! You'll be less secure, not more so and if disaster strikes it could wipe you and your dependents out.

    Before taking this drastic, irresponsible step shop around for cheaper cover that still provides the protection you need. You can also increase the excess payment in order to reduce your premium. Find out from your employer if they don't perhaps offer cheap cover and make the same enquiry at your credit card company.
    Article By: Kabous le Roux

    Can you add to the list of what you should not be doing right now?

  2. Thank given for this post:

    sgafc (19-May-09), wynn (15-May-09)

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