The words ‘credit crunch’ are relatively new to most people outside the world of finance, but as the impact of the credit crunch spreads beyond the financial sector it’s worth taking note of what they mean for you and your money.

Your pension is another part of your financial planning that you should consider, even as we face harsher economic times. If you haven’t yet started a pension, then that time is now and you should speak to your financial adviser about your options as soon as you can. Even if you already have a pension, you can still talk to your financial adviser to ensure that the contributions you are making are keeping pace with inflation and are enough to provide you with the pension you expect when you retire.

Whatever strategy you choose for coping with the credit crunch, talking your options through with your financial adviser will help ensure that you make the right choices at the right time.

WHAT THE CREDIT CRUNCH MEANS TO YOU

In very simple terms, a credit crunch is what happens when banks cut back on the availability of loans or charge customers more for taking out loans. This affects not only the ordinary bank customer looking for a mortgage or a personal loan, but also companies looking for loans to fund, say, the development of new products or expansion into new markets.

Significantly, it also means that banks themselves experience difficulty in borrowing money, usually from other banks. Bank’s loans to each other are normally secured on their assets, which in many cases means their mortgage business and the properties tied to it.

As the USA’s property market boomed in the early 2000’s, many banks, seeking to capitalise on the growth in house values, offered poorly-advised mortgages to people who could barely afford to repay their mortgages: the so-called sub-prime mortgage market.

When the economy slowed and interest rates rose in 2006 and 2007, many of these house owners found themselves unable to repay their mortgages. A ripple became a wave and banks found themselves with thousands of defaulting mortgagees and thousands of un-saleable houses. This had a major impact on the financial sector as many interbank loans were secured by these sub-prime mortgages.

The banks then moved to limit their exposure to bad, property-related debts by tightening their rules for offering credit, first to other banks and then to businesses and the general public.Thus began the credit crunch we have today.

The effects of the credit crunch were first felt in Ireland’s property market but have now spread across the economy. The Irish stock market has suffered badly alongside stock markets in Europe and the United States. With property values falling and the cost of living rising on the back of increased housing, energy and food costs, consumers are cutting back on spending. The higher cost of borrowing is forcing companies to postpone or cancel investment and growth plans. In 2018 we have seen some improvement in economies but there is still uncertainty about..

Given the pressures of the credit crunch on everyone’s finances, there are a few steps you can take to protect your money and your lifestyle and navigate your way out the current economic turbulence.

It is at times of uncertainty like this that actively-managed investment funds come into their own. Fund managers with experience and expertise can really get to work to ensure that any money you invest avoids the riskiest assets, markets and sectors. Instead the focus should be on dependable assets which offer solid growth potential in the medium to long term.

Fund managers know that every investment cloud has a silver lining, so they will look for growth opportunities no matter what the prevailing conditions. For instance, negative sentiment in the markets has dragged down the share values of some very good companies with excellent prospects, making them very attractive investment opportunities.

The best fund managers will ensure that a high degree of diversification within their funds will prevent them being over-exposed to sudden drops in the fortunes of particular assets or sectors. So, when choosing a fund it pays to take the time to look for one with a proven track record through the bad times as well as the good.

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