(03) 9020 2905It feels spooky out on the financial streets at the moment. A bit Twilight Zone – The Movie: “You want to see something really scary?”
You can sense that, maybe, a Bad Moon Rising is just around the corner. A little over the hill, or beyond the horizon. It’s a little difficult to pinpoint exactly when the fan is going to be hit with the … proverbial poop.
Quick, somebody switch on the Navman!
I’m trying to follow the Hitchhiker’s Guide to the Galaxy mantra (“Don’t panic! Don’t panic!”). But it doesn’t help that we’ve got the most senior politicians of the richest 20 countries on the planet acting like headless chooks trying to pump me and my fellow Earthlings full of “economic stimulus packages”.
Is the only cure these financial injections? I doubt it. But it sure is fun watching the world’s governments get miffed at each other for not giving away enough of their people’s taxes.
The serum is just our own money being injected back to us. (Should we be angry that they didn’t give it back when we really needed it, when interest rates were above 9 per cent, or grateful?)
But there’s another feeling that’s hard to shake.
And that is that we are witnessing potentially a once-in-a-lifetime opportunity.
For those with a bit of time on their sides, in particular Generation Xers (those born in the 60s and 70s, aged roughly 28-48 now), there’s a confluence of events that has a pleasant smell about it (or is that Heather Locklear’s perfume wafting out of that women’s magazine?)
We’ve got:
- Doom and gloom in abundance – best time to buy, according to legendary investor Warren Buffett.
- Low interest rates – the home mortgage isn’t hurting as much as it was.
- Low stock markets – bargain basement prices.
- Falling property prices – which have still got a little further to fall, in my opinion, but must be approaching good long-term value.
It’s been a roller-coaster 18 months for those with mortgages. This time last year, rates were still rising. Since then, rates have been slashed to the point where savings are probably growing for those still employed, which is most.
There is capacity in many households at the moment to be making either a first investment, or the next investment, that will help secure a financial future for themselves or their families.
In Debt Man Walking, I coined this type of opportunity a time to “Manage your mortgage, then manage your wealth”.
If your mortgage is under control – that is, you are covering the mortgage comfortably and have some excess savings capacity – then you have the power to create some wealth outside your home, by investing in quality growth assets (shares or property, although my belief is shares offer better value at the moment).
The initial investment doesn’t have to be huge. It doesn’t have to cause financial pain to the household’s budget. (But there must be some diversification.)
But taking a minimum five-year approach and investing now could prove to be a time when you get to look back at a hot decision and channel some Maverick from Top Gun: “I’m going to need a beer to put these flames out!”
Those current savings on a $300,000 mortgage are approximately $760 a month, or more than $9100 a year (depending on whether the banks pass on last week’s rate cut).
With that money, you could:
- Blow it on a good time or a brilliant holiday.
- Use it to pay for some other rising expenses, like school fees.
- Trade up to buy a bigger home (with a bigger mortgage).
- Accelerate your current mortgage repayments.
- Put some money towards an investment program.
Or you could do a combination of the above. The cuts to your mortgage have certainly been deep enough to use it across several options.
There is no wrong choice. But … it’s time for the younger generations to stop moaning about the opportunities that the Baby Boomers (and older generations) had to buy cheap shares and houses.
This is probably the opportunity that the next generation has been waiting for.
You’ve just got to be mindful of what Rachel Hunter said in those awful Pantene ads: “It won’t hippen overnight, but it will hippen.”
Spooky times or not. Opportunity is knocking.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and principal financial adviser with Castellan Financial Consulting. Contact Bruce: bruce@debtman.com.au