It’s hard to believe that we’re fast approaching the end of yet another year. We are venturing into the holiday season with its associated sudden spike in consumer spending.
The holiday season often sees South African citizens splash their bonuses or salaries to entertain families and friends. Understandably, things are certainly not as rosy as they were a few years ago, and spending habits are fairly restricted by tough economic conditions which continue to reduce disposable income.
Nonetheless, we’re all aware that regardless of how tough the conditions are, many South Africans are likely to spend lavishly over the holiday season. The increase in spending is always a welcome boost for businesses but I suspect that, while many business owners know they should, few truly think about, or plan for investing their ‘silly season’ profits.
Investing is still a daunting prospect for many investors, even those who’ve been in the business for a long time, and understand the various forms of risk and their associated returns.
Before investing in any of the available options, it’s always important to do your homework and heed the most basic rules of investing.
As bankers, we always say the most basic undertaking is to plan your trade, and trade your plan. This means that prior to investing – in fact, prior to having the money to invest – clients need to thoroughly plan how and why they want to invest, and what they want to invest in.
The first thing that an investor has to consider is his liquidity requirements – in short, when will need money to be available. Coastal retailers, for instance, will probably need to have money available during the quieter months of February and March, and after the short holiday season between March and April until November when the ‘silly season’ kicks off again. It would therefore be worthwhile spacing investment maturities to match that profile.
In the shorter term, an investor needs to be very clear about how prone his business is to unexpected financial shocks. If such shocks are part and parcel of his business environment then an investor needs to consider holding a substantial portion of his money in short term deposits that can be accessed quickly and at low a cost.
The second thing that an investor has to consider is his risk appetite. If only a limited portion of the available cash is needed to carry operations to the next ‘silly season’, then it is worthwhile considering higher risk options that, under normal circumstances, would pay higher returns.
An investor also needs to be prepared for a higher risk in loss of yield, and, in certain cases, capital. Another factor to consider is that many investments, particularly higher yield investments, come with fees and costs. Don’t be fooled by promises of high returns – make sure that associated costs do not eat into those returns.
What’s even more important for people to remember is that banks, among other financial institutions, are willing to pay for liquidity - the longer you invest your funds, the more you’re likely to benefit from a higher rate of interest.
Once you have made your decisions and formulated your plans, put everything you require – accounts being opened, etc. – in place now. A great plan has no value of you cannot implement it!
Currently, the financial market is incredibly consumer friendly and the channels, through which people could invest, are vast.
Investment products are now available directly from various providers and banks are in a very unique position to offer these products online, instantly, in the most innovative ways, and at extremely competitive rates. All in all, everything points towards an environment that’s conducive for businesses to start or continue investing.
So, before spending those ‘silly season’ profits - think about how they could be maximised to sustainably growing your business.
By Theunis Fourie, Head of Liabilities at FNB Commercial Banking
