How to invest wisely and stop a slow-moving money crash
Sharemarkets sinking and surging, property price pressure and huge COVID-19 impacts have made 2020 a year of transformation. Investors may need to change their thinking.
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I crashed my bike the other day and flew over the handlebars.
It was the first time in almost 40 years that this had happened – fortunately it wasn’t at high speed and there were no broken bones.
But there were a few scratches, bruises, a battered ego and some dignity left lying on the road.
It got me thinking about how a skill that I thought I had mastered decades ago could go pear-shaped because of a simple mistake.
This situation also affects investors, who may be sticking to their old ways and hoping that long-held financial strategies will see them through.
However, the world is changing fast, and COVID-19 is accelerating this change. Here are a few things investors may need to reconsider to prevent their own slow-moving money crash.
SHAREMARKET FAVOURITES
For decades the big banks served their armies of shareholders well, delivering solid growth and a growing dividend stream. But the coronavirus has cancelled or cut their dividends – and hit many other popular stocks – and banks are under increasing pressure from low interest rates and fintech competitors.
Other former favourites such as property trusts, Telstra, AMP and insurance companies are also struggling.
Sharemarket specialists say it is more important than ever to revisit your investments rather than rely on stocks that worked for you in the past.
BUYING LOW, SELLING HIGH
Billionaire investor Warren Buffett famously said it was good to be greedy when others were fearful and fearful when others were greedy.
This buy low, sell high strategy will still work for investors, but the rapid transformation of economies and finances sparked by COVID-19 means that some weak stocks will stay weak as the world evolves.
And high-flying technology and health companies may continue to defy gravity if there is growing demand for what they do.
Buying an investment at a record high is only a poor decision if it’s not going to reach more record highs.
SAFE AS HOUSES?
Property prices have been under pressure as COVID-19 stopped tourism, cost many people their jobs and sharply cut immigration levels.
Economists say Australia’s population growth this financial year will be at its lowest level since 1917, as travel bans decimate immigration. Strong population growth had previously underpinned the housing market.
And the falling interest rates that have helped push house prices higher in the past decade cannot go any lower.
Owning real estate is great for many reasons – it’s financial security and a place to live – but don’t expect to make big bucks from property price growth any time soon.
D.I.Y FINANCES
If you don’t have the time, knowledge or motivation to research and act on financial trends and changes, get someone to help you.
It could be a trusted family member or friend, accountant, stockbroker of professional adviser.
Financial planners copped criticism in the fallout from the banking royal commission, but a good one will deliver strategies to save you tax, grow wealth, protect your family and prompt you to ask the big money questions you may have been avoiding.
Originally published as How to invest wisely and stop a slow-moving money crash