The five biggest money mistakes you can make right now

I doubt even Australia’s richest person Gina Rinehart – who is said to have lost $280 million in the first market rout last week – is feeling relaxed and comfortable about her finances right now. So if you’re stressed, you’re by no means alone.

But the current economic craziness raises a greater danger: of making moves that compound, rather than contain, the damage. With everything going on, here are the five biggest money mistakes you could make right now.

If you’re feeling stressed by the current market craziness, you’re not alone. But it pays to stay calm and ride it out.Credit: Simon Letch

Mistake one: Selling in panic

We saw the largest two-day loss in the history of the Bloomberg Billionaires Index last week, followed by a 10 per cent, one-day rally in the S&P 500 Index after Donald Trump’s tariffs backdown, Wall Street’s third-best day since World War II.

And, in a more subdued way, our market followed suit. Our week went: 4.2 per cent loss Monday, 4.5 per cent gain Tuesday, 1.8 per cent fall Wednesday, 4.5 per cent spike Thursday and then a pullback again on Friday.

But don’t bow out and sell: strap in for the – probably ongoing wild – ride. Historically big falls are fast and recoveries slow, but that’s not even the situation here so far.

In any case, retail investors who panic and get out of the market usually do so at a low and miss the rebound, so they lock in their losses. They do so when it has just become too psychologically uncomfortable to hold on. So, my top tip? Stop looking.

The exception might be if you are within a couple of years of retirement or have already retired. Then, at least one year of ready cash on which to drawdown and live would help you ignore what’s happening with the rest of your money.

Mistake two: Keeping cash

Multiple institutions now forecast a double interest rate cut next month, and we may well see four this year. So the flipside of that natural urge to sell is you’d be starting to hoard cash precisely when rates are set to tumble.

Falling interest rates mean a huge mortgage-busting opportunity to become an outright owner of your own home far sooner.

And compare this return from money in the bank versus money from – probably today cheaper – bank dividends. You might earn 3 per cent interest versus a 7 per cent yield.

There’s also a far smarter option for money you need to keep safe, like the emergency fund I advocate as part of my strategy for financial success and safety, if you still have a mortgage

Holding this money in an offset account beside that mortgage will save you the equivalent of its interest rate – possibly 6 per cent. And that will be tax-free.

Mistake three: Not recognising the investing opportunity

Sure it’s scary times – and tipping a lump sum into the market at once today is probably not a smart move, but there is a way experts play volatile markets to minimise the cost and maximise the upside.

Dollar cost averaging is what happens when you invest a smaller, fixed amount of money at regular intervals, regardless of a market’s price fluctuations.

It both removes the risk of investing a large sum just before a slump and brings down the average price you pay so that there is more potential for upside when markets go up. You buy more units at low prices and therefore have more to ride the recovery.

You accomplish dollar cost averaging simply by drip feeding money into the market. This is happening automatically in your super (although more frequent contributions make it work better) but there are also extra opportunities to do this that don’t cost you much more.

The super co-contribution and spouse contribution are the chief ones, and think about if you could mop up unused annual allowances too, maybe by setting up a cheaper (because it’s before tax) salary sacrifice.

Mistake four: Ignoring the DIY rate cuts on offer

As I wrote last week, there is roughly a full percentage point between the average big four bank interest rate and the most competitive comparable product. That’s four rate cuts that are available today.

Snaring just these four by switching a $500,000 mortgage to a top lender would cut your repayment by $315 a month instantly.

Mistake five: Dropping repayments

Falling interest rates mean a huge mortgage-busting opportunity to become an outright owner of your own home far sooner and far cheaper.

If you simply move to the best deal but keep your repayments the same, you will save $180,205 in interest and get out of debt five years early. And that’s by paying not a cent more than you are used to paying.

Better still, with a fully paid off roof over your head, you’ll remove future interest rate risk and diminish your reliance on income and employment.

Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.

• Advice given is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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