Alvin’s quick credit crunch quiz

Q: What’s the point of putting it in the bank if the interest rate is almost zero?
You put it in the bank because banks do pay you a little interest rate and a little interest is better than losing money. Look for a safe bank vehicle that will give you a reasonable return. Making a little is better than losing a lot.
Q: Is it still worth saving even in these difficult times?
Yes, cash is your friend during times like this. To abandon saving at this point is really leaving yourself open to even worse problems. Let’s say the stock market suddenly drops even lower, clearly the economy is continuing to contract. What if your company downsizes and you’ve no savings? You’ve no safety net. Right now having six to nine months worth of living expenses in the bank is just prudent.

Q: Is now a good time to invest for those with spare cash and managing to weather the storm?
I think you might want to start going back into the market slowly, as you identify companies which are for you at unusually low prices and who will recover. But don’t expect that you’re buying them at the low point. Expect that there will continue to be volatility in the market – so they may go lower and you may lose some money. But you have to believe in the long-term prospects of the company you’re buying at this price is still good value. For example, I’ve been looking at Google, at Apple and the company that makes Blackberry phones because the products are so sexy. I’ve also been looking at a few pharmaceutical companies and essential services that haven’t been hit so if the economy gets worse – what will people have to do? They’ll need to use essential services like trains and other public transport modes. So I’ve been looking at companies in those sectors that may thrive when people realise they will have to stop doing x and start doing y.

Q: What’s the worst thing people could do at this time?
Overspend. Or pretend that the value of money will remain the same as it is today – it won’t. Overspending and continuing to do things that mean you’re living on 100% of the money that you earn is really short-sighted.