Sure things aren’t perfect. Sure we are facing an outbreak of Coronavirus, but maybe it’s best to just sit yourself down like Elle Woods watching hot guys play sport. (On TV though, to be safe).
Of course, some people will get sick. A small proportion will sadly die from complications, in the same way people die from the flu every year. But this is not 1918 and we are not all going to perish from a Spanish flu pandemic.
What we are really witnessing on the markets, in the media and in the supermarket aisles is panic.
This is a downturn driven by emotion.
I suspect that in the face of a vague sense of existential dread caused by climate change and growing wealth inequality and political instability, the virus is something to focus our collective panic on. We can’t stop companies burning dirty coal but goddamn it we can buy some hand sanitiser!
For most people, the biggest threat is not to our health, but to our economic security. There is quite likely to be a recession or at least a downturn. (A recession is technically two quarters of negative economic growth).
The biggest consequence of a recession is that people lose their jobs. Employers create fewer jobs. Casual staff have their hours cut. It takes longer to find a new job.
A recession means people buy less stuff and use fewer services and that’s at the core of the employment market.
What does this mean for you?
Build your emergency fund.
Ideally you will have three months of living expenses tucked away in a place that’s neither too easy to access (like, on a night out), nor too hard. You don’t really want your emergency funds in the sharemarket in case it falls in value at exactly the time you need it (like now).
Having an account with a different bank to your normal one is a popular option. Remember that the Australian Government guarantees bank deposits (up to $250,000 per account, per bank) so it’s pretty darn safe.
Another good idea? Start dusting off your CV and kick up your networking a notch.
Even in good economic times, you never know when you might walk into work one day and be made redundant (God, isn’t that an awful expression?).
So it’s not a bad idea to keep your CV up to date, know some relevant recruiters and make sure you’re out and about at industry events.
I know, networking events are hard work, but they exist for a reason – not because we enjoy balancing plates and wine glasses in one hand and trying to remember four people’s names.
What about my investments?
If you’ve already made your emergency fund, and are worried about your investments, this is a perfect time to do nothing. Or buy more.
OK that’s my opinion, and I’m not an adviser. But the key thing to ask is: am I an investor or a day-trader?
If you’re investing for your future self, then you have to remember that market downturns are as inevitable as someone on Married at First Sight cheating on their fake spouse.
If you don’t need the money right now, it’s time to chill. Or as some market pundits (like this guy) are saying, it may even be time to buy.
I’ve been dropping money into my Raiz account (because I’m too lazy to pick things). My friend just bought a big chunk of bank shares. Another friend who recently bought Gold ETFs is boasting about how well they are doing.
I’m not saying any or all of us are correct, but what we have in common is this: we have taken a view and acted on it.
We also have our other ducks in a row, in terms of mortgages and emergency funds.
The worst thing you can do right now is look at your portfolio on a daily basis. The shorter time-frame you look at, the worst it will seem.
This is the ASX100 if you just look at it over 6 months.
But this is what it looks like over the last 10 years.
Sure it’s down now, but it’s still up overall. It looks even better over a longer period but the ASX tool doesn’t go longer than that and I’m too busy to find another one.
The point is this: investing is a long-term thing.
So what I’m basically here to say is:
- Be alert but not alarmed. The world isn’t ending;
- If you have spare cash you might buy some cheap investments;
- But if you need spare cash in case you’re out of work for a while, keep it in the bank.
That’s it Fierce Girls. Stay cool.