Finances have hit the news headlines again this week as the continuing euro crisis sent shock waves across stock markets and served as a sharp reminder of the tough times of the disastrous banking collapses of 2008.
With stock markets fleeing from uncertainty, the euro crisis helped the Footsie lurch to lows not seen since December. And the trend at the moment seems to be ever downwards. It means once again it’s a worrying time for investors. Should you just sit and watch your holdings shrink? Should you simply sell up and return to the market in less volatile times?
Or should you – contrarily – be bold, and buy equities on the basis that when others are selling, it’s always a good time to buy?
I don’t have the answer. I do know that buying or selling shares in a panic is seldom a good idea. On the other hand, ignoring the dangers can be foolhardy. The simple fact is that if you have investments – shares or funds – they are likely to have been hit in recent days. But I don’t believe that should mean you should panic and withdraw from the market.
If you can hold fast – at least until the current crisis calms down – you should be able to get a better idea of the long-term prospects for the market. And long-term is the timescale you should be looking at if you’re an investor.
That means taking a view over what you think may happen in the months and years ahead, not reacting to daily price movements.
It could be a good move, for instance, to move more cash into government bonds – gilts – which could benefit in the future from greater demand as institutional money seeks a more secure home.
However, saying all that, if you need the cash for a particular purpose – such as a home deposit – it may be logical to cut losses and liquidise your investment assets now.
In short, if you have been watching this week’s unfolding headlines with horror and fear, it may be that volatile stock market investments may not be the best place for your nest-egg in any event.
You should, in normal circumstances, take regular stock of your financial planning to ensure that investments are on track to achieve what you set them up to do. Using the current crisis to do a stock check is no bad thing. If needs be, contact an independent financial adviser to talk through your plans.
But ensure you take the time to make a reasoned decision, not one provoked by blind panic. Research published by Which? yesterday showed that almost two-thirds of people resorting to using a payday loan have been using the cash they’ve borrowed to pay for household bills or buying other essentials like food, nappies and petrol.
The figure reveals the true danger of these loans which – despite the claims of payday firms – are clearly not mostly used by sophisticated people happy to pay for the convenience of instant cash. Instead, the Which? research paints a distressing picture of hard-up families turning to expensive credit simply to survive.
In the process, of course, they’re risking falling into a disastrous debt spiral, where they can’t afford to repay the debt on time and are then hit by further excessive interest charges and additional fees.
A quarter of those who took loans said they had been hit with hidden charges such as high fees for reminder letters, and one in five said they were not able to pay back their loan on time. A third experienced greater financial problems as a result of taking out a payday loan, while almost half say they were hit with unexpected charges.
The figures come as no real surprise. I hear stories almost daily of rogue payday lenders turning the screws on borrowers, sending threatening letters in the knowledge that many people will simply crumble with fright and pay the extortionate charges.
So I echo the MP Yvonne Fovargue’s call this week for the Office of Fair Trading to introduce a “power to suspend” unscrupulous companies. In other words, the watchdog should be able to close down rogue firms, rather than have to go through the laborious legal process that allows dodgy lenders to continue their preying on the vulnerable for up to two years.
Yvonne believes, like me, that the way the industry is currently operating penalises vulnerable consumers. She said: “Voluntary regulation has failed miserably and now is the time for the OFT to be given the power to crack down on the irresponsible actions of an industry making huge profits on the back of vulnerable and low income borrowers.”
I couldn’t agree more.