Get strapped in for a long ride

Bruce Brammall, The Australian, 14 November, 2021

14 Nov 3

When the Corona-crash started in February last year, it’s fair to say I was pooping my pants.

In some ways, it feels like a million years ago. But it wasn’t.

Markets were tanking. Businesses were shuttering. The largely American term “furloughed” began to have a local meaning.

I wasn’t Robinson Crusoe. Most businesses and their owners were extremely anxious. There was pure panic, globally. I was getting emotional texts from staff and friends that had me in tears.

Was this “Armageddon”? I wanted to be prepared in case it was.

I offered to pay out my staff, immediately, all of their holiday and long service leave. They just had to let me know. I desperately didn’t want them out of pocket if this was “the end”. (Not one asked. Says a lot.)

Governments were shelling out money via machine gun. Public debt that would last a generation was sprayed like financial confetti over the masses.

Interest rates were cut twice in March to near zero. Money became, effectively, free.

If you couldn’t afford rent or the mortgage … don’t worry, you had a moratorium. The government was doing its best to make sure no-one was going under. To boost confidence.

With the benefit of hindsight, fears of the unknown of early last year, while terrifying, were over-egged. The pain wasn’t (and still isn’t) evenly spread, due to state-based lockdowns and the international border being shut. Despite a volcano of government money, some did go to the wall.

BOTTOMING OUT

What did all this mean for investors? It meant the Australian stock market had a “flash crash” of nearly 40 per cent, starting on February 21 last year and bottoming out on March 23.

Markets decided they’d gone too far. The recovery started. Substantial gains were made by 30 June last year, but the recovery since, particularly globally, has astonished.

Turns out it was probably the greatest buying opportunity of our lifetime. But the only takers were ballsy – those prepared to catch a falling knife – as this hadn’t happened for a century.

A year ago, the RBA cut rates again, to 0.1 per cent. If there was any inflation, your cash was going backwards.

Swathes of people were looking at bloated bank accounts and wondering, “what the hell do I do? There’s nothing good that’s going to come out of cash for a long time.”

Why?

Because the Reserve Bank told us so. In February this year, the RBA said that it couldn’t see stars aligning for interest rates to rise before 2024.

To lift rates, it wanted inflation, both in consumer prices and wages. That needed the jobs market to tighten – competition for work, pushing wages higher.

There are some incredibly smart boffins doing amazing calculations for the RBA. But stating it was highly unlikely incomes and consumer prices would rise much before seemed a stretch. The US Federal Reserve had a similar message.

Markets took it as a sign and ran with it. Hard. All year.

The US stock markets and many other international markets are way above their pre-pandemic highs. Australia’s market hit new highs in August, but are now slightly lower.

If you haven’t been in the market, you’ve been missing out. Thankfully, for most, their superannuation is generally fully invested, so if they haven’t been investing personally, they haven’t been totally left behind.

FOMO? OR FOJI?

Earlier this year, investors were suffering from FOMO – the fear of missing out.

They didn’t want to watch their cash effectively going backwards for the next three years. They wanted in on the equities party, and their sharply rising markets.

But there has been a shift in sentiment since among investors. Australia’s market wobbled in August and didn’t recover to new highs, as offshore markets did.

FOMO has been replaced by FOJI, the fear of joining in.

It’s a natural swing of the pendulum when markets hit new peaks. “Is buying in now a good idea? Are markets about to fall?”

I get it. It’s a tough feeling to fight. Taking the big decision to invest, then copping just pure dumb bad luck on the timing, would feel devastating.

COME CLOSER …

But, potential investors watching from the outside need to know a few things to overcome their fears.

First, it’s unlikely your timing will completely stink. Proper crashes are rare. And if you’re waiting for the next big crash to come so you can invest then … you could be waiting a long time. And, when it happens, you’ll probably be too scared to invest anyway.

Second, share and property markets inevitably recover.

Third, and this is the most important one, you don’t have to go all in. You’re not trying to bluff your kids with fake chips on a poker table.

POWERFUL AVERAGES

Do you have the same worries about your super?

When your employer puts money into your super account – usually every one to three months – do you worry about timing risk?

No. And what happens to your super over time? It will get the long-term average of whatever your fund gets, because the money is being added regularly, whether markets are going up or down.

(This will be the case for almost all Australians, except those with a self-managed super fund, where you actively make investment decisions.)

Super is a lifelong investment. It comes with your first job. For the next, roughly 40-45 years, money is going to be tipped into it and automatically invested, without you thinking about it.

But at retirement, it’s still designed to go for another 20-30 years, where money is coming out as a pension – “automatically uninvested” as it were.

PLAY THE SAME GAME

For those who are struggling with the concept of investing when they think markets are high, play the game the same way that your super fund does.

Average in. Regular, smaller, purchases, will diffuse many of the risks of purchasing at a single point in time.

The same day of the month or quarter (the 1st or 15th, doesn’t matter), over several months, six months, or a year, or a lifetime. And you automatically buy on that day, no matter what markets are doing.

LIFETIME INVESTING

For most people, their superannuation will come into existence in their early 20s and will last into their late 80s or 90s. (In fact, governments are concerned about the growing trend of people dying with more money in super than they retired with.)

Let’s call that 70 years.

Your personal non-super investing should be following a similar path.

Some part of your income should really be put away for investing, each and every month. Or, perhaps, you make a major investment purchase on a regular basis, such as annually.

Each year, you should have invested in something somewhere.

Property is the tough one. I love property, but it’s not something you can buy every year. And even property die-hards should have some diversification and allocate a portion of their investments to non-property investments.

Investing should be a lifetime journey. Something you show a bit of love to on a monthly basis.

TAKE THE PILL

So, if you’ve been wanting to invest, but too scared to get into the driver’s seat out of fear you’ll crash into something that looks like a market correction … it’s time to take a travel sickness pill, get in the vehicle and put on a seatbelt.

You don’t need to go straight from 0 to a 100kmh. Take your time. Get advice. Build it slowly. But if you’re not in the car, with the roadmap outlined above, what’s it going to take to get you there?

Those first few months of Coronavirus last year were terrifying. The contagion itself, lockdowns, markets crashing, business shutting, governments panicking.

Investing for a lifetime shouldn’t be anywhere near as scary, particularly when there are ways to mitigate the risks.

Bruce Brammall is both a financial adviser and mortgage broker and author of books including Mortgages Made Easy. E: bruce@brucebrammallfinancial.com.au.

 

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