Set yourself up to survive the storms

Image result for storm pictures

As we speed into another new year there appears to be a general uneasiness in the community about 2018 and what we might expect.  As usual, the papers are full of forecasts ranging from optimistic to pessimistic, and I have had several emails from people asking whether they should cast out part of their portfolio to protect profits because the markets have had such a good run.

Unfortunately, investing is not simple.  It is well accepted that nobody has successfully and consistently picked the top and bottom of any market, and forecasts are notoriously unreliable.
And, of course, the wildcard is what my good friend Dr Don Stammer call Factor X:  events which are unforeseeable.

Two years ago, nobody was predicting the election of Donald Trump, the aggression of North Korea or the many sex-scandal revelations.  But, here’s the rub.  We can forecast with a high degree of certainty that Factor X events will occur in the coming year – but by definition we have no idea what they will be.

So, let’s acknowledge there will be blips, and possibly bit bumps, in the year ahead, and then focus on the factors we can control.  If we get them right, we should get to the end of the year in good shape.

As far as investing goes, keep in mind that it is normal for the Australian share market  to have four negative years in every 10.

But if you are 50 years old now, you are likely to have more than 35 years ahead of you, so your best strategy is to keep your portfolio intact and hang in there when one of the normal downturns occur.

The greatest enemy of the investor is not taxation or inflation – it is inertia.  Just as the hardest part of writing a column is sitting down at the computer and typing the first word, the most difficult challenge facing anyone who wants to get ahead financially is to take the first step from point A to point B.

This is why it is human nature to use any excuse to delay.  In the later stages of last year there were uncertainties about North Korea’s next step, and whether the Turnbull Government could stay in power because of the citizenship issues.

As I write this the headlines are all about the Federal Government and the Opposition renewing their arguments about negative gearing.

There is always something in the daily news that gives us cause to delay, but never forget the words of US politician and teacher, Eugene McCarthy:  “Being in politics is like being a football coach.  You have to be smart enough to understand the game and dumb enough to think it important”.

Think about it: how much of your daily activities really depend on who  is in government?

Certainly they might fiddle with tax rates and social security payments, and distant projects such as the Snowy River scheme will regularly make the headlines, but at the end of the day your future tends to be in your own hands.

For most people their financial future will depend on how well they perform in their jobs, and how well they manage their money.

My advice is to ignore the headlines and the machinations in Canberra and do everything you can to make your own financial position as secure as possible.

This includes improving your skills to improve your income, paying back extra on your home loan to give yourself a buffer if interest rates rise, diversifying your assets in case of a share or property slump, and – where appropriate – using a strategy such as salary-sacrifice to save tax.  This will ensure that your household prospers, irrespective of what happens in the world.

Written by Noel Whittaker – 14 January 2018


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