Lessons learnt — let’s dive back in

It’s about this time of year that I become thankful. If I’m writing this, my liver held out for another summer.

Come February, we’ve still got warmer weather. And the cold beer that accompanies it. Beer gardens are good times. I loved the (too-short) holiday I get, to hang out with the kids and with friends, who all seem to proudly classify themselves as one type of bogan or another. Identifying with bogans is the “new black”.

January, inevitably, is about chillaxing and reflecting. And I did my share of that this year. What mistakes from 2014 will we learn from in 2015? If you didn’t learn anything, you failed.

I did learn stuff. I lost or wasted time and money on a few things. Here are five.

One: Politics has changed. And it’s having bigger direct impacts on financial investments. Failure by governments to implement is the new normal. Unless it has bipartisan support, be wary of investing on promised law changes.

The 16-month-old Abbott Government cannot implement anything because of a hostile Senate. The previous Rudd and Gillard governments failed to implement much for totally different reasons. Much of their efforts have been overturned in any case.

Don’t try to hitch a ride on the next shooting star. It will end in tears for all but a few. For most, the best way to invest will be by using indexed investments.

Two: Give market pessimists a cuddle. Praise be to the panic merchants! Australia’s stock market had a number of mini-crashes last year. And, every time, the doomsayers have predicted it was the start of fireworks. They’ve been wrong. The recoveries have been rapid. Buying opportunties all.

Is a great crash coming? I don’t know. I don’t think so. I wouldn’t call myself a raging optimist – that’s why I’m diversified – but the sky is not falling in. Bugger off Chicken Littles.

Three: Buy and hold is hard to beat as an investment strategy, particularly for direct property investment, where entry costs (stamp duty) and exit costs (agent fees and advertising) are exhorbitant.

David Murray’s Financial Systems Inquiry has recommended that the halving of capital gains tax for investors holding assets for longer than a year be abolished, as it “distorts” the market. If you sell for a $10,000, $100,000 or $1 million profit, he wants you to pay full tax on the gain.

Warren Buffett’s great investment rule “My favourite holding period is forever” has always been my favourite. If Murray’s CGT recommendation is adopted, it will become even more important to understand that “if you never sell, you never pay CGT”.

And property is the perfect asset class for holding.

Four: Nothing good has ever come out of politicians trying to “help” first home buyers.

Is property toppy? Not sure. There are parts of Australia that I wouldn’t be buying in right now.

One thing is certain. When politicians start drawing “moron” in non-removable texta on their own foreheads, you know the easy money has largely been made.

Enter the normally sensible Senator Nick Xenophon, who TATTOOED idiot on his noggin by suggesting Australians should be able to access their super to buy homes.

Politicians meddling in property never achieve what they think they will. Accessing super to buy homes would raise house prices, just as first home buyer grants did. It would hand cash directly from largely Gen Y home buyers to those selling those first homes, Boomers and Gen Xers.

Five: Protect your home. Insure it, in multiple ways, because you never quite know how you could lose it. It’s your castle. Defend it.

Things go wrong. You can lose your job. You can get sick. You can get injured. And each of those can mean that a personal rough patch could be multiplied by the stress of losing your home.

Protecting your home is a three-pronged strategy. First, save a wad of cash in your offset or redraw account. Enough to last several months without income. Second, insure the property itself against all kinds of damage. Third, insure yourself, particularly with income-protection insurance.

Several times last year, I witnessed how income protection has saved both financial lives and homes. What pays the mortgage? Your income. Why on earth more people don’t insure it, I’ll never know.

Right, that stuff is so last year. Let’s make a difference to 2015.

Bruce Brammall is the principal adviser and mortgage broker with Bruce Brammall Financial (www.brucebrammall.com.au ). E: bruce@brucebrammallfinancial.com.au.