This useless fluff is unlikely to deliver the goods

I feel like Homer Simpson at this time of year. Um, actually, maybe “I look like” Homer Simpson.

After 25 Christmas parties in 25 days, I can’t see my belly button. I’ll tackle that in January.

What I need help with is … what is that thing in my navel? Is it just useless fluff? Is it the fortune note from a Chinese cookie? Or is it a valuable gem?

’Tis the season for navel gazing. Tra-la-la-la-la …

I’ve learned a lot this year. No new lessons. But I’ve had some golden oldies BRUTALLY reinforced.

The good oil is that with 2012 nearly done, if you didn’t make money investing this year, you weren’t in the stadium.

Despite constant uncertainty, the Australian economy is in great shape. There are elements of weakness, particularly discretionary retail. Gerry Harvey is bleeding. If you’re worried about his health, you know where to shop.

We’ve got low unemployment, “relatively” high interest rates (meaning the Reserve Bank can cut further) and business is, largely, phenomenally profitable.

For example, Australia’s banks are now twice as profitable as they were before the GFC. The GFC was a “financial” crisis! Tell that to the banks. And John Symonds, who sold the controlling interest in Aussie Home Loans to Commonwealth Bank last week.

The Australian share market is up around 10 per cent. Property is on the rise again after a gentle 18-month decline.

Sure, with the RBA on a “expansionary footing”, returns from cash are abysmal. But, hey, if you’ve got a mortgage, that hasn’t been bad news. If you’ve been building up your offset and redraw accounts, even better.

Even the investment world’s most boring asset class – fixed interest, which you’ll have in your super funds – has continued to kick goals.

The first lesson reinforced in 2012 was to “buy the dips”. And, like Seinfeld’s George Costanza, even go the double dip.

The world’s stock markets went into meltdown in May. Europe was going to sink us like the iceberg that got Leonardo Di Caprio on the Titanic.

Greece, Italy, Spain and Portugal were diving, head-first, from the cliffs into the rocks of the Mediterranean.

Buying the dips is treading on Warren Buffett’s coattails. Buy when others are fearful. May turned out to be a good time to do that.

The second lesson was about control. If you’re going to hold a really big stake in an investment – generally shares in any business – you must have some control over it.

If you have half your life savings in anything, you want some say in decision-making. If you find you’ve lost control, get out. Sell up. Move on. Divest. It’s better than losing the lot.

Lesson number three is related – diversification.

Don’t even hold half of your eggs in one basket. I don’t care how well you know an investment. You can lose everything quickly.

Think Nathan Tinkler, “Fast” Eddie Groves, and Billabong’s Matthew Perrin. Geniuses on the way up. Morons on the way down.

Four is insurance. I’ve seen two polar opposite examples this year reinforcing the same message. Insure your most important asset – your income.

The first guy’s health disintegrated five years ago. He has medical bills that would shame most people’s mortgages.

As a result, he lost everything he’d worked 35 years for. His home, his investment properties. Income protection would have saved him.

The second guy’s life had also disintegrated. Ill-health meant his income halved. However, he had income protection insurance. He was able to hold on to his investment properties. And there’s a happy ending. He has recovered and has just bought a home for his family.

Life’s crappy events can happen to you. Are you cashed up enough to survive a financial H-bomb? You’re not? Well, insure yourself!

Lesson five is about securing your primary investment – your home.

A home is the cornerstone of any investment strategy. And it’s all beer’n’skittles when interest rates are falling.

Falling interest rates are a time to build cash reserves. Moat your castle. Your home is not perfectly safe. But, damnit, you will fight harder to save it. Save during good times, and that’s when interest rates are down. Like now.

The last lesson is that navel gazing is for suckers. What was a gem this year might be belly fluff next year.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.