Ignore the crash, and have some beer and skittles
Share market panics are scary and absolutely no-one knows for sure where they’ll end up.
The smarties will talk about buying bargains now because Australia’s future is more linked to China than the US or Europe, and how our economy is much better placed to ride out any financial storms than the rest of the world.
They’re right. BUT share market panics are not logical. They’re driven by emotion and almost impossible to predict.
Everyone sees financial markets as these flash, highly-disciplined and skilled systems at the heart of capitalism.
In reality they are driven by just a bunch of normal (highly paid) human beings making decisions on buying and selling assets. They eat, breathe and act on emotions like the rest of us.
Markets are a bit like a suburban house auction on steroids. A good property auctioneer can whip up a frenzy among investors and an unexpected piece of information can send it in to reverse.
Investment managers act on their fears like anyone else and make emotional decisions often based on not wanting to be different to the rest of the herd in case they’re wrong.
That’s why panics take on a life of their own.
There are basically only three decisions to make as an average investor… buy, sell or sit on the sidelines and do nothing. This is a time to sit back and watch. It’s way too dangerous to get involved in this stampede.
Yes it could be the start of a second Global Financial Crisis… but it might not. Who knows for certain?
Look I know the headlines are scary and you’re feeling the fear. But just take a deep breath, follow a couple of simple steps and then get on with your life.
- Don’t take big financial risks When markets are wild and risky, it’s time for you to do the opposite. Don’t go out on a financial limb for anything. It’s not a time to take out a whopping big loan on a flash new house or start a new business which needs a lot of cash. If this is the start of a new GFC, you don’t want to get caught owning something new (using someone else’s money) if values go down.
- Stick with quality If you haven’t learnt this already then now is the time to start. Quality stocks and other assets will always drop less in downturns and turnaround faster with the inevitable recovery. Don’t get suckered in to dodgy investments because they invariably get wiped out when the crunch comes.
- Check which superannuation option you’re in Most superannuation funds offer a range of different options which follow various investment strategies… from conservative to high risk. So many people opt for the best performer which, during boom times, are the specialist share funds. The only problem is the specialist share options usually take the biggest hit in a bust. Talk to your fund manager about making sure you’re in the right option for your circumstances which might be a more conservative balanced of capital guaranteed fund.
- Pay down debt During a crisis banks go in to their bunker and conserve cash. They become stingy and get nervous about customers high borrowings and in assets which are going down in value. Never be a forced seller (by the bank) in a crisis. So work towards paying down debt and getting off a bank’s “watch list”. Everything runs in a cycle. Booms always end in a bust (the bigger the boom often the bigger the bust) and busts are always followed by a recovery. It’s just the timing of the cycle which varies. In the current panic be alert but not alarmed. And keep it all in perspective. Follow what’s going on but having a beer with friends or reading the kids a story are way more important.
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