Prepare for tough times ahead of us

Bruce Brammall, The West Australian, 1 August, 2022

When multiple once-in-a-lifetime or once-in-a-generation “epic events” start happening each year, the terms start to lose some impact, yes?

Figuratively, we’ve been constantly bashed in recent years, with global pandemics, market crashes, recessions, emergency responses and, of course, supermarkets running out of toilet paper.

And as we sit here, in the middle of 2022, there’s no let up.

We’re dealing with interest rates rising the fastest in a generation, inflation not seen for decades and our potential second recession in two years (after previously going nearly 30 years without one).

Don’t know about you, but I’m tired.

The “volume at 11” noise has become so constant, that talk of another recession in Australia is being received as a little bit “meh”.

Recessions are a bit serious. Not so much in isolation, but when all of these “generational” changes are brooding over our shoulders, a head in the sand approach to it is probably a bit dumb.

As we lounged around last Christmas break, everything was all Goldilocks. No inflation, low interest rates and markets booming. How fast did all that evaporate?

The big concerns

As at now, the short-term prospects of holding onto a job doesn’t look to be the major concern. Unemployment, at 3.5 per cent, is not the issue. The opposite, in fact. Employers can’t get enough staff.

That could change. And quickly. Rising unemployment usually comes with the turf of a recession.

But for the majority who have a job, it’s now about keeping ahead of rising inflation, interest rates and being prepared for things turning south and out of your control.

(And for those who are renting and think that you’re not impacted by interest rates, think again. Rising interest rates will further pressure rents.)

The new Labor Government has its work cut out for it. So many of the pressures causing issues in Australia are coming from overseas, largely totally beyond its control.

Assume the worst

Anyone preparing for the runup to Christmas should be assuming things will get worse from here.

A few of those things are certain. Interest rates are certainly moving higher. The expectations are that inflation will edge further north. A technical recession? Not a certainty.

But, if they are combined with a recession, they mean … well, the same thing we financial advisers bang on about incessantly.

Build yourself a moat.

Make sure you have access to a pool of money. Cash is a saviour. Having savings as a buffer is underrated as a resource to deal with things turning south, particularly if unemployment starts trending the wrong way.

It doesn’t have to be all cash. Having assets, such as shares and other liquid investments, that can be quickly turned into coin is important.

And one positive thing about rates rising … you can actually earn some interest. There hasn’t been much on offer for cash for a long time, but high-interest online savings accounts are beginning to pay an interest rate that means something.

However, for those with mortgages, it will never beat earning money, tax-free, in your offset or redraw accounts. Get yourself some.

The offensive

And always be ready for the inevitable opportunities that come out of a recession.

Economic downturns end. They always do. Growth eventually returns. It’s in the human spirit.

Markets, however, usually react ahead of time. Traders in all markets – shares, property, fixed interest and cash – are forward looking. They are generally looking ahead trying to predict what is happening at various points in the future.

Stock markets, for example, are generally considered to be looking ahead six to nine months. Markets fell in the first half of this year, because they were worried about the economy in the second half of this year.

Fixed interest markets started falling late last year, because they stopped believing the Reserve Bank’s claims that interest rates were on hold until 2024.

Understand that investing is a lifelong journey. Sometimes when market tumbles are scaring you, while it might be hard to swallow, it can be a good time to invest.

Don’t panic

Stay calm. Don’t take anything for granted. And don’t be complacent.

A recession will happen, or it won’t, but be a little selfish for yourself and your family and fortify your finances.

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