Jonathan Braans Profile Follow Mail Dear reader,In an era marked by financial crises and economic uncertainties, the stability of banks has become a major concern for customers, shareholders, and regulators. In the past few months we have seen major collapses at large global banks such as Silicon Valley Bank and Credit Suisse, so your concern is justified.
That said, any investment with any financial institution does carry a degree of risk. In the years preceding the banking crisis of 2008, nobody would have thought a bank as big as Lehman Brothers would collapse, but it made huge investments way outside its own risk parameters and paid the price for this. The point here is that the ‘too big to fail’ argument holds no merit and even the largest and most well-capitalised balance sheets on earth hold a degree of risk in them.
Firstly, if we look at money market rates over the past decade, a R100 000 investment made 10 years ago would be worth around R175 000 today. If you had invested that same money in the S&P 500 index, your money would be worth R365 340. This goes to show that although the stable 6% return on cash seems like a safe option, equities tend to outperform cash substantially over the long term.
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