2022 has been a year of extremes.
We started the year rejoicing as easing restrictions meant that we could finally gather in large groups and take off our masks.
Families that had been cooped up for more than two years could finally stretch their legs by boarding a plane and enjoying a long-awaited vacation.
But as the year wore on, the mood darkened.
Surging inflation and rising interest rates have left our pockets a little emptier..
Everyday expenses ranging from your common cai png and coffee to your groceries have cost more. Rising loan interest rates have also led to higher repayments every month.
If you’re struggling with higher expenses and worried about not saving enough, you’re not alone.
Debt stress levels are increasing
A wide-ranging survey conducted by OCBC Ltd (SGX: O39) in August showed that stress levels are increasing.
The bank polled 2,182 working adults between 21 and 65 years of age and found that most were not saving enough for a rainy day but were, instead, spending on discretionary expenses such as travel.
Debt stress levels were increasing as close to a third of respondents took on more unsecured debt such as credit card debt and renovation loans, up from a quarter last year.
Worryingly, around one-fifth of the respondents were having difficulties managing this higher debt load.
Rising interest rates are also crimping borrowers’ ability to service their mortgages, with as many as four in 10 people facing difficulties.
Coupled with high inflation, households found it increasingly challenging to budget for the future.
Just another day in paradise
While these statistics are worrying, it’s important to remember that economies go through boom and bust cycles.
It may feel like a confluence of bad events is plotting to make our lives miserable.
But in reality, the world has grappled with such troubles before.
The US saw sky-high inflation back in 1973 when the rate jumped to 8.8% (the current rate is 7.7% for October 2022’s reading).
By 1980, inflation had hit double-digits, coming in at 14%.
It was an extreme period as the US Federal Reserve raised interest rates to nearly 20% to bring inflation back under control.
And if you’re fretting over a possible recession next year, it’s useful to note that recessions are much more common than you think.
The US has suffered 14 official recessions since the Great Depression in 1929.
Closer to home, Singapore has seen four recessions since the mid-1990s, including the recent one caused by the COVID-19 pandemic.
Yet, if we track the movement of the bellwether S&P 500 Index, it has jumped more than 13-fold from January 1928 to the present.
Keep calm and take a deep breath
Granted, the sentiment feels bad at the moment as we wrestle with a toxic combination of weak growth, falling consumer demand, higher prices and surging interest rates.
You can, however, count on solid companies to keep generating healthy profits and consistent dividends.
There may be an unavoidable short-term dip for both the top and bottom lines as the wave of bad news hits.
But if you are vested in dependable blue-chip stocks such as DBS Group (SGX: D05) or Singapore Exchange Limited (SGX: S68), you won’t have much to worry about.
Well-managed REITs such as Mapletree Logistics Trust (SGX: M44U) and CapitaLand Integrated Commercial Trust (SGX: C38U) should also provide you with peace of mind that they can manage these challenges.
Knowing that strong businesses such as those above can tide through adversity, you can keep calm and just carry on deploying your money into these stocks for peace of mind.
Above all, it’s important to manage your finances prudently.
Ensure that you have at least six months of expenses set aside for emergencies, and use only cash in excess of this amount for investments.
It’s crucial to note that bad times don’t last.
If you have the patience and tenacity to carry on investing, you will be well-rewarded when these troubles pass.
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Disclaimer: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.
