(03) 9020 2905Ah, a bit of warmer weather and the Christmas party season is underway. Awesome time of year to be alive in Australia, or what?
People’s moods lift with the extra sunshine, beer and bubbles flow, steaks sizzle on the barbie … who needs anything else to celebrate?
Well, for one, here’s cheers to the stock market! In 18 months, Australia’s stock market has been on the juice. It’s stacked on about 35 per cent – 40 per cent if you include dividends.
Did you have the guts to invest in May 2012? Remember, Greece was sinking into the Meditteranean. Europe was considering redrawing boundaries to kick some charlatans out. The US wasn’t looking too flash either.
Australia’s economy looked okay, but investors had become accustomed to locking themselves in the toilet every time the doorbell rang. Anything would cause investors to grab a paper bag and breathe into it deeply.
In any case, hindsight shows that it created an opportunity. And it has created four types of friends this Christmas.
Friend 1: Grabbed it with two hands!
Daredevils who like playing with knives. The market was falling, but after many years observing, decided the games had to end at some stage. Probably now.
They dived in, possibly geared their positions, held on tight and felt sick for a few months. A year later, the gut churning was replaced by a grin that kept growing.
How are they celebrating? They’re turning up to barbecues with bottles of French bubbles and a case of imported beer.
Friend 2: Put one hand on it
These are the ones that did invest some … but wish they’d had more courage. They desperately wanted to grab with both hands, but couldn’t shake their painful memories of 2008. Any time you watch your investments fall by 55 per cent in 17 months is going to create scars.
Half will be happy with the gains made, given they couldn’t have bared risking any more. The other half are also happy, but wishing they’d gone in harder.
What are they drinking? They’ve bought some fine wine and a six pack of something boutiquey.
Friend 3: Damnit! Is it too late?
Had the money. Wanted to. But couldn’t. Nobody had made anything out of the share market in years (true), so why would they try?
Now hampered by the thought that it’s too late. The easy money has already been made.
“The market is due for a correction – I’ll jump in when that happens.” No they won’t. Because, again, they won’t want to catch the falling knife. They missed that last opportunity. They’ll probably miss the next one.
What are they drinking? VB, or anything bitter.
Friend 4: Wha-a-at?
Blissfully unaware of how good things have been. Didn’t invest … because the thought had never occurred to them. Has not even noticed their super has increased by around 25 per cent (not including contributions).
Now drinking? Anything. Like there’s no tomorrow.
Congratulations if you’re one of the first two. Winners were determined solely by participation. You had to be in it to win it.
Investing when markets are crumbling, is hard. It requires shouting down emotions, most of which are telling you to “stop this crazy thinking” and stick the money in the mortgage.
Do you want to give yourself a fighting chance of winning and drinking the good stuff next year, or the year after?
If you do, stop fighting yourself. Don’t try to win an emotional battle few can.
Just invest. It doesn’t matter how much. Add to your investment monthly. Automate the process. Every month, the money leaves your account and gets invested without you thinking about it.
Find yourself a low-cost, low-management investment, such as an index fund (Vanguard, for instance), a listed investment company (Argo or AFIC), or an exchange-traded fund (ETF).
Some months you’ll buy just before a fall. Some months you’ll buy it, just as it’s about to rise. If markets go into an extended fall, you’ll be picking up cheaper stock every month.
Just make sure you’re not friend three. At this time of year, everyone wants to drink something a little nicer than normal.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.