PODCAST | Investment, Savings and Interest Trends During Uncertain Times

In this Business Day Spotlight podcast we look at how savings and investment have been impacted by COVID-19 for ordinary South Africans.

Mike Estment CFP®

Mike Estment CFP®

Executive Chairman And Private Wealth Manager

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PODCAST | Investment, Savings and Interest Trends During Uncertain Times

Host Mudiwa Gavaza is joined by Mike Estment, Executive Chairman and Private Wealth Manager at NFB Private Wealth Management. Their discussion explores the savings and investment trends that have been created by the COVID-19 barriers to investment, investing for the long term, interest rates, the importance of savings to the economy, some pointers to help guide someone looking to grow their money, and the importance of seeking professional financial advice.

Listen to the podcast below or review the transcript for more detail. Read Mike's feature article that supports this interview. In which Mike discusses three things to consider before restructuring your investment portfolio during uncertain times.



Mudiwa Guvaza: Good morning, good afternoon, and good evening to all our listeners, this is the business day spotlight. Your destination for African Business made simple, my name is Mudiwa Gavaza, and for today we are looking at what I consider to be “consumer investment advice,” simply because the markets have not been kind to companies, individuals, institutional investors and their likes, all around the world, not just in South Africa, people have seen incomes dipping, people have seen some of their investments are actually being disseminated in terms of their value. And it would be so tempting at this point to just try and sell and recover your losses.

But we're going to be talking to an expert, we have Mike Estment is the Executive Chairman of NFB Private Wealth Management, just to help us understand what's actually going on, and whether you should be running to sell all your stocks, bonds, shares, property, or whether you should be perhaps calm down a little bit and see things through and how you can actually still your nerves during these very tough times.

Mike Greetings to you.

Mike Esment: Good morning Mudiwa and to you listeners.

Mudiwa: No, no, thank you so much for joining us today. I think just a place to start on your end, just someone who's interfacing with clients, someone who has sort of seen the trends over the last 3 to 4 months. And we've all seen the headlines, but like the situation in the world of investments. What sort of trends have you sort of seen out there, and how have actual South Africans, the individuals whose moneys actually in these markets, how have they actually reacted to?

Mike: Mudiwa if I may, and I’m just going to pick up on something you said, and that is the trends that have developed in the last 3 to 4 months. When you're investing, I think the biggest mistake people make and it's an absolute common human error, is that we focus on “almost here and now.” And when one is investing, especially if it's retirement savings, if it's lifetime savings, if it's something where you’re putting money away for kids' education or for a house eventually, don't think in 3 month periods of time or 4 months periods of time, that they don't matter. If you look over the longer term, one of the biggest challenges we face as South Africans is inflation, so it's higher in developing markets like ours, emerging markets as we are called, compared to the overseas markets where inflation is almost 0.

So we've got to watch inflation, and we,  our job as investors and the job of the investment professionals that look after us is to make sure that the we continue to be able to buy with our 2020 Rand, the same bread, the same petrol, the same rental. Whatever we’re spending money on, the holiday car, it doesn't matter in 2030. And hopefully with a little bit of skill, and a little bit of luck, luck is always a part of investment, so the professional that says to you it's all about them is they talking nonsense. It's about time so be very patient, that's probably the most important thing is understand what you’re trying to achieve, have a plan and then go for it.

So a quick one switching back then to what we seeing happen, in that short period that I think mustn't influence too much how we save. So, what's happened is that the markets is being thumbed as you said. And probably advice to the listener is that don't think because some things down 10 or 20 or even 50 percent, that it's a fantastic time to buy, you need professional help. And I'm not trying to garner support for my industry but I honestly think that a great advisor is someone that's not trying to sell you something but someone that's going to listen carefully, interpret what your needs are, and then try and help you shape something which suits that given your nature.

So you might be an ultra-conservative person, my job is to sort of help and encourage you to keep enough conservatively but also understand the ravage of inflation, and how it will absolutely damage you in 20 years' time if you just put your money straight into the bank and save it in interest rates. So I think that the trends are that the markets have been thumped, we've seen our local currency get hammered, we've seen the ratings agencies change South Africa’s ranking to junk status which makes it not investable for quite a few funds overseas and then consequently we had our market sell off even harder than most others. But the sun's going to come up tomorrow is nice saying that I like to use, is that it's pretty bleak out there now but there's no reason that we cannot see the Rand which appears to us to be a little oversold come back reasonably.

There's no reason why our market and the quality companies in South Africa can't come back from these very low prices as they've done through many crises over the last 20, 30 or 50 years.

Mudiwa: Mike I will like to sort of follow on from what you're saying to touch on one of the big things that COVID has actually done which has exposed many South Africans, I guess the lack of emergency funds, a lot of people have sort of been caught very unaware and you're sort of living paycheck to paycheck and you thought that life would continue as normal, but the moment that your paycheck is either cut or  you lose it completely, then it becomes quite a bit of a disaster and I think that in times like that you're very tempted to either liquidate whatever investments you have, so that you can continue living or to perhaps dip into some of the savings that you were mentioning just now. Perhaps either just savings that you have an account or retirement funds, that sort of thing, should people be doing that sort of thing and just given how strained people are at the moment, how do you keep them from doing that?

Mike: That's a very interesting point, it has social as well as economic and practical implications. So if you are fortunate enough to have those savings and you either compromised as a business owner or compromised as an employee of the business where either your income is cut or is lost in its entirety. You have to make a plan, and you don't have anywhere else to go but to dip into investments is probably a luxury but it's the only thing you can do other than if you're fortunate enough to have wealthy parents or depending on the age of the person that we're talking to, or perhaps you are a grandparent that has children that are in a fortunate position where they're not compromised and they can help out.

But to the extent that we can encourage people to almost bite the bullet, almost to cut the cloth, cut those luxuries, cut whatever you can to make the damage to savings as little and as insignificant as is possible given the fact that the markets are down at moment, so the share prices are down, your retirement savings value is down, but this has happened before, and it will happen again. These things do recover but the money has to stay there in order to allow that recovery. We call it… in the industry we call it crystallizing the loss or crystallizing the profit. The profit or loss is only made real when you sell whatever it is underlying.

So if you were lucky enough to have some Naspers shares that have done a fabulously or Apple shares overseas and you sell them , you have then made the profits, or if you were in something that's gone horribly wrong, like some of the property companies at present or Steinhoff which is a complete mess a couple of years ago, is you sell that you crystallize that loss or you could lose 50 or 80 or 90 or heaven forbid 100 percent of your money. To try is the point. but socially I think South Africa is in a very different place to US and parts of Europe where they are able to write checks out and bail salaries and help people along. We are not in that fortunate position because we came out of a very weak place before COVID. So it's desperate, for those that can afford to cut costs and cut the cloth accordingly, that's absolutely recommended.

So that's a good point you make, and but I think that the reality on the ground is that people have nowhere else to turn. It's then up to them or up to the advisors to seek the least damage to investments, so if you had something that’s more cautious, that’s better than something that's more aggressive.

Mudiwa: I think one of the things that has been resulted when we've talked about it, quite extensively on this platform is the issue of interest rates. We've seen some of the biggest interest rate cuts in a long time, interest rates are now lower than they've been in more than a quarter of a century, and just depending on who you talk to, it does sound as if Governor Lesetja Kganyago, and his team may have some room to actually lower those interest rates by another 50 or so basis points. But notwithstanding that the cost of money is actually very low at the moment compared to where we were before COVID-19, so in light of these low interest rates, would do… could you just talk to us about I guess the dangers?

Because I'm seeing 2 specific dangers; one I guess opportunistic people getting into the market perhaps, trying to prey on more vulnerable segments of the market, scams and that sort of thing, but also at the same time people panicking, and perhaps going to their banks and getting into more debt than they would normally want to or have to get into. So could you perhaps talk to us on those 2 points?

MikeSo I think the scam point is probably the most important bit of intelligence insight right now. If one goes back in South Africa’s history, and you look at interest rates, they typically follow sort of a wave like pattern. They go up when the economy is overheating, the reserve banks will use interest rates to slow things down. And when the economy is in trouble and you have something as dramatic as COVID just shutting everything down, is investment rates and interest rates are a tool that's very effective tool for the central bank to use to try to stimulate spending and borrowing by corporates and individuals to try and help the economy back on to its feet.

So that's happened, and you said, we are in a place where interest rates haven't been this low since the 1960’s. And the governor has some dry powder, he could certainly drop interest rates a little more which is a tool we have, and which is absent overseas, because their rates are almost at 0. So we've not been, in our lifetime, in the current South African economically active South Africans life times, we've not really seen this. The trick is that in the previous cycles, you had things like Master bond appear many-many years ago, you then share max, you have funny property deals where they offer you double digit returns. If you can only get 4 percent or 3 percent in the bank, there's no way that the property company should be paying you 12 percent, because you could borrow that money much less expensively the from the bank if they were kosher and if they were good and if they were they stood up and the bank accepted their terms.

So the point of making consumers and investors super careful is a brilliant point, be very cautious, ask lots of questions, seek professional advice, and I think that you'll be protected. What happens there Mudiwa is that people have maybe 4 years or 5 years ago, they put money away at a really nice 8% or 9% interest rates and they’re used to getting that coming in monthly, and suddenly when the banks phone you and say your fixed deposits is maturing, and they offer you half the rates, you're in trouble. And people don't necessarily go and ask for advice, they simply knee jerk, they look in the Sunday papers or they hear from a friend of theirs that there’s something going on and that's the beginning of the end. That’s very-very dangerous.

The other question that you asked was about debt, and debt I guess like in most instances, if it's anything that's luxurious, if its for a new vehicle,  if your car is giving you a hard time and you need a new vehicle because your car is giving you a little bit of a hard time, or it's the home improvement that you promised the family, and you feel duty bound or the holiday once we are allowed to jump in our cars and drive somewhere, is just take it easy, rather stall it and share the honest truth with the people that you need to and defer that if you can at all cost. Even though the interest rates looks low, clearly they follow that cycle I spoke about just now, and once the Reserve Bank sees things normalizing, and starts pushing interest rates up from these ridiculously low levels, it's going to come and bite.

To the extent, it is a time where South Africans need to be cautious. It is a time which is almost unprecedented in terms of the extraordinary nature of the stress that we are under, and we’re also in a lockdown which is emotionally draining on many people. So I feel for them, but I’d rather that they get online and talk to their family and their friends and their advisor, then knee jerk into doing something silly.

Mudiwa: Before we end off Mike, I wanted to get your thoughts on something, because when we talk about saving and investment and these types of conversations, sometimes you sort of get the sense of that it's the reserve of certain segments of the population, those that can “afford to actually save or invest.” But COVID-19 like you said at the start it has exposed the actual need to just have this, that it's more for necessity than anything else. On a broader level, what do the collective savings of South Africans actually mean for the economy? And what sort of indicators have you guys sort of been watching over the last few months that sort of give you guys a pulse check on what those levels are at?

Mike: Mudiwa, that's a great question and in fact its multi-faceted, quickly I will try sum up. It is that firstly with interest rates being at these low levels, it's almost a disincentive to put money in the bank, but the investor must remember that although it's not beating inflation, it's not growing, it still is money saved. And so the 2nd point that I'd like to make is that if I can encourage your listeners to ask the bank what they’re earning. We call it lazy deposits, the big banks that have current accounts and transmission accounts and savings accounts, have the investors' money lying lazily in those places earning little if not nothing. So given that rates have been hammered and people's incomes have been compromised, it is absolutely worth going to the teller at the bank or your banker if you have the luxury of having one of those, and asking them how you can do better.

So, you know every percent counts, and compound interest is remarkable over time. So the 1st point is just check what you got in your current account, in a savings account, in a transmission account, because the banks are there to make money, and they're going to take our money as inexpensively as they can from us, and they're going to lend it to borrowers at the highest possible rate that they could possibly get. So let's ask for that rate, let's put them under pressure, let's compare one bank to the other, because that save a family from probably making some of the silly mistakes, and putting their money to work in a proposition that isn't sustainable.

2nd part of the point quickly is that the economy needs money in businesses, the economy needs money to be spent and money needs to have what we call “velocity.” So the more times you can turn money over to your business, or through the economy, the more dynamic the economy is. So typically you hear that money in the governments hand is lazy as well, it doesn't get used quickly, there is so many rules and processes and committees that it has to get through. If you were in an entrepreneurial business, let's look at a little spaza shop for instance, those guys are brilliant at turning the money over. They sell their goods, they know how much to buy, and the know what the consumers want, and the money turns over a couple of times a week or sometimes even daily. So you need the velocity of money, you need the money to be moving from A to B to C, and everyone makes a little bit of money.

That's great, and that's how America has become a great country, it's not General Motors and Ford and the big banks and big companies, it's the middle economy that really makes things tick and that's something that South Africa has got to get better at.

Mudiwa: And the last point Mike, what's your outlook I guess for this in terms of this conversation, what's the outlook for the rest of the year? Economically, the Reserve Bank last week has painted some type of a picture for us, the reduction in tax collections for the country, the budget deficit that's increasing at the same time, the lowered GDP growth that is expected, and how do you think all of those factors are actually going to weigh down on consumers, and specifically the ability to save and invest?

Mike: Again, forecasting and in preparing for this we're talking about the crystal ball. The crystal ball is a dangerous thing to bring out, it's being too clever and forward guessing with so many balls in the air and so many changes and things happening, is probably inappropriate but let me give you my best shot. In South Africa, let me talk about the place. We are remarkable people, we’ve bounced back from some crazy stuff, and I think once again we'll do the same. The president has taken and made some really significant decisions, we've moved quickly, we've given ourselves a bit of time, we’re now slowly moving back into an active economy, unemployment is desperate.

But South Africa has the ability to bounce back from some really dramatic weak points, just think the last 20-30 years, we've come through the wringer, and we've come out and we seem to be able to bounce back. We’re all however in a very-very weak place at the moment, so it's going to take all hands on deck, it's going to take government, you’ve seen collaboration between government and big business that hasn't happened for decades, and it's when it counts that there a countries true colors come through, and we are one of those. So I think that the recovery is going to be slow, it's not going to be without pain, I don't think we’re done with this thing, I think we bought ourselves time, hopefully we actually escape some of the dramatic sort of outcomes in some of our overseas countries trading partners with what they've seen.

But I really do think that we have a will as a nation, and I think that we will win this one over, I think it also has the potential to change the shape of how we’re thinking as a country and as a population, as communities. I've seen some remarkably interesting and positive things happening in amongst the disasters and the strife and the struggle. And yeah we've got low interest rates, we've got a weak currency, we've got no one wanting to invest in South Africa, when that turns around, and the world starts needing our iron and our gold and our platinum and our coal, this place can turn and turn on quick.

Mudiwa: So that's been us with Mike Estment who is the Executive Chairman of NFB Private Wealth Management, and he is just letting us know what the world of saving and investment is looking like. Because just talking about the fact that the markets, the economy, things are in a bit of a downturn right now, and that has actually forced or made people think that it is time to get out of the market, dip into some of these savings and stuff like that. And Mike is just letting us know that if to whatever extent you can… if you can cut the luxuries, especially the luxuries in in your life, that seems to be one of the central messages; cutting the luxuries in your life, and also not getting into debt for luxuries, it would be a very-very good point.

Also just a warning that with such low interest rates that some people might be coming in and offering you some very high returns, at a time when there seems to be a disincentive to actually be saving some of the money particularly in like a savings account or something like that. So just be aware of what's going on, that is the message coming in from Mike. Mike how can people perhaps get in touch with you, or engage with that either yourself or NFB?

Mike: Mudiwa, I’m available on an email address [email protected], NFB is available on several numbers around the country, but our website which is www.nfb.za

Mudiwa: I think a conversation like this is very good, because saving and investment has really been exposed as being a necessity as opposed to being a luxury during the COVID-19 crisis, a lot of people actually found themselves unable to weather the one or 2 months without work or cuts in salaries, which sort of shows the actual state of people's personal finances, and also just the fact that those that do have investments, the type of panic selling that's been going on in the market, when you see some of these dips in share prices, and stuff like that, it is an indication to some extent that people are selling. So I think going forward, some type of a long term mentality needs to be developed in South Africa, around the world, because this is not something that just affects consumers or people in South Africa, the investment market in South Africa.

No, this is something that needs to be pervasive all over, because at the end of the day, like what Mike was saying, and I like the fact that he was talking about the fact that people tend to focus on the now, people should be focusing more long term. And unfortunately in life they're going to be those ups and downs, when you look at anything they're always ups and downs, it's never an up and up. And if you are in school for example, just because you are going through a yearlong course and you fail the 1st 2 assignments in the list of 7 or 8 assignments, does not necessarily mean that you're going to fail the entire course because the whole course is an aggregate of your efforts over a period of time.

In the same way that someone's investments are an aggregate of the performance of the market over time, not necessarily your performance during a very brief sort of 3 month period. So I think a more long term approach to investing needs to be developed, and at the same time this is a good time if any for people to be learning about the markets, to be learning about the different savings and investment options that are out there. One of the things I really appreciated about what Mike said is that point about going to the bank, and just trying to figure out what are your options that are out there, what are the options for you to actually make a little bit more money, just one more of a percentage point in terms of some type of returns because we do know that banks are lending money out to the world. So if there's a way that you as an individual, saver and individual account holder can take advantage of those sort of things, that perhaps there's something to look into.

I’m Mudiwa Guvaza of the Business Day and Financial Mail and this has been another edition of the Business Day Spotlight, which is a multimedia live production. From myself, and the rest of the team, it is good evening, good afternoon, and good morning.


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