This might sound a little voyeuristic, but watching investment markets go into meltdown can sometimes be a bit of fun.
Grab some popcorn. From the right vantage point, you can watch the whole horror film unfold. The screaming, the terror and the panic.
Raw human fear. The 24-hour news cycle means we can always get updates on the fatal decisions that saw billions of dollars vapourised, while at the same time shouting at the TV, “Noooo! Don’t go that way!” to investors you suspect are walking straight into the path of a buzz-saw.
But it’s not “Freddy Vs Jason”. It’s “Faltering China Vs Floundering Resources”.
Way scarier, in my humble opinion. But because it’s financial, you can actually profit from it.
Australia’s stock market has been gruesome viewing in recent months, particularly the first two weeks of the year. I might have found January terrifying, but I was sunning myself on a beach by day and downing a few cold lagers by night.
And it’s not just our share market. International equity markets have been faltering too. With residential property, Sydney and Melbourne are looking shaky, while Perth has had a bad 12 months.
Volatility has become prevalent again. We get these little earthquakes every few years.
How do investors survive? Sell everything and head for the hills? Pin your ears back and buy discounted assets like a man possessed? Or calmly just watch the panic as it engulfs those around you?
My advice for Generation Xers (1964-1980), when you see a stock market going up and down like Sam Newman’s shorts, is …
… keep it simple.
Gen Xers should have a long-term goal of accumulating quality growth assets, constantly throughout their working life. And if that is your aim, you can do little better than to emulate your super fund.
How? First, understand how super works. Every month (or quarter, or week), your employer puts money into your superannuation account. Based on your predetermined instructions, that money gets automatically invested.
You don’t think about it. It just happens. If you haven’t issued instructions, it’s likely someone has on your behalf, such as your super fund or financial adviser.
The money comes in on 15th. On the 16th, the money gets invested. Without fail.
Automate it. Take out the guesswork, the emotion. Just let the computer programs in the background do their thing.
If the average investor allows emotion to become involved, you know what happens?
They won’t buy when markets fall, for FEAR that they could lose more money. But they will buy when markets are rising – and will buy more, the more that markets rise – believing they will rise further. This, dear friends, is known as GREED.
During your working life – particularly in your 30s, 40s and 50s – your financial job is to acquire quality assets that will look after you in later life.
Buy those asset on a regular basis. If you buy regularly enough, such as every month, then you take out, almost completely, the potential timing issues of a market collapsing.
If you don’t know how to choose those assets, pick some index funds and simply buy those on a monthly basis.
Actually, I’d argue that most people who think they know what they’re doing when it comes to buying assets, would actually be better served by regularly buying index funds also.
If you buy consistently on the way in, you will get that long-term average. If you do so on the way out … you’ll also face little “sequencing” risk either.
Again, that’s how superannuation is supposed to work, and how it will work best. And most Australians would actually be better off if all they ever did was to emulate their superannuation, coincidentally with a similar amount of money.
So, if you’re a Gen Xer and you’re looking for a survival strategy through the current volatility, the answer is to continue doing what you’ve always done … if you’ve always accumulated assets, no matter what’s going on.
If you’ve not been a regular investor, then join THIS flock.
It might feel hard to buy now, but realise that you’re buying assets cheaper than they were three months ago. And while you’re doing it, set up an automatic, monthly, purchase system so that your investment plan becomes an automatic part of your finances.
Come and complain to me in 10 years if this system hasn’t worked.