Australia’s S&P/ASX 200 (ASX: XJO), the USA’s Dow Jones (DJI) and just about every sharemarket on the planet has slipped into what finance commentators call a technical ‘market crash‘.
Some junk investment news websites are even calling it a ‘bloodbath’ or ‘death spiral’ and all kids of crap. The fear-mongering is definitely taking its toll on markets and, worse, Australian, Kiwi and international investors who should be focused on one thing and one thing only:
How best do I create long-term wealth for me and my family?
Before I go on, please keep in mind I’m not making light of the tragedy of Coronavirus. I’m merely talking about how investors can process the recent falls. Please speak to a medical professional or call Beyond Blue if you’re feeling anxious (it’s perfectly normal, I’m feeling it too!).
I want to recap on a few things we’ve already witnessed:
- Markets have fallen. Hard. And could very well keep falling in the next 12-24 months.
- People are going entirely to cash in Super (which I find insane for 90% of people, see below)
- Interest rates are going to zero or thereabouts. They’ve already fallen.
- I’m not an expert but from those I’ve heard from (and following China’s example): complete quarantine and unlimited testing is the only thing that can slow the virus and minimise harm. That’s the reality we’re all facing — and businesses too.
- Many investors in the stockmarket (the ASX and globally) are completely uninformed and insensitive to prices (so many are selling ‘at any cost’).
- No-one can specifically pinpoint when the fallout will end and how we’ll get there.
If you agree with those facts (note: some are educated opinions, so disagreement is encouraged), the next question becomes:
If the market has already fallen, interest rates are low or negative… what do I do?
What I’ve always told our Rask Invest members, and our near 50,000 podcast listeners and tens of thousands of free readers, is there are some rock-solid, must-have, no-brainer, foundational personal finance principles everyone must follow before they invest in shares or ETFs:
- Have a budget that forces you to save up to 20% of your wage (to do that, you must have an income or salary — calculate your budget and take-home pay using our income tax calculator)
- Pay down all nasty debts (debts with interest over 8-10%, as well as Afterpay and Zip) and make sure you have at least 6 months of living expenses in emergency cash (e.g. in an offset, redraw facility or high-interest savings account)
- Only ever invest in shares if you don’t need the money for at least 3 years (but preferably never or after retirement age)
- Keep costs inside Super low (below 0.8% in yearly management fees is an absolute no-brainer) — and invest in a strategy that matches how you invest outside Super (cash ‘investments’ are next to worthless to most people younger than 50 inside Super)
- Maintain insurances, like income protection and death insurance through Super or elsewhere
With those facts (see first list) and absolute money principles (second list) in mind:
Why the heck would anyone who fits those buckets be moving their Super to cash?!
Side note: if you have a mortgage and you’re looking for ways to use your cash and capital better, check out this discussion I had with an independent financial planner named Kyle Frost earlier this week:
Here’s my investing checklist
I’m keeping my family safe and following medical guidelines? Check.
I’m gainfully employed? Check.
I’m optimistic about the human race? Check.
I’ve got my finances sorted? Check. (I’ll high-five to that, see our money basics course)
I have a simple plan to invest for the long run? See below…
Do the following today:
- Talk to your partner (or anyone who will listen). They might doubt you. Listen to their concerns but lean towards long-term optimism if the conversation turns. sour. Show them Vanguard’s chart of the stockmarket for over 10, 20 or 30 years.
- Calculate how much excess cash and savings you have available for the remainder of 2020.
- Set yourself a goal to invest once every month for the next 8 months (until the end of the year). For example, if I had $24,000 set aside I’d break that up into chunks ($24k / 8 months) of $3,000 to invest every month.
- Write down your plan or use, say, Google Calendar (as I do) to set a recurring reminder for one day each month to “Make my investment”.
- Develop a strategy for investing in good quality companies (shares) and ETFs.
Please note: I’m biased “AF”
Ask a hairdresser “when do I need a haircut”.
They’ll say, “today, obviously.”
Ask a real estate agent, “when’s the best time to buy a house?”
Response: “Right now, I’ve already got the perfect place for you.”
Ask me (a guy who runs an investment research, education and money strategy service for hundreds of Australians and Kiwis) when to invest and I’ll say:
“Every. Single. Month. Rain, hail, or shine — your only goal is to live within your means and accumulate assets.”
Investing successfully in the share market is not about timing the market, it’s about time in the market.
If the past 120 years of stock market history is anything to go by — keep in mind all of the wars, droughts, outbreaks, terrorism, market crashes and other things we’ve witnessed in that time — it’s far better to stay invested for decades, provided you can handle months like these.
Call me a dreamer, but I’m not the only one.
I’m about to start allocating more capital to buying shares from the ASX and globally.
If you have made it this far and you’re looking for 3 ideas to get you started (including two stocks I already own) please grab a copy of my free investment report below.
Stay safe. Happy investing.
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