Do You Need to Get Ready for the Recession?

Do You Need to Get Ready for the Recession?

Wouldn’t it be great to be able to predict the future? Science fiction is complete of people who get to make great financial decisions with the advantage of that good old 20/20 hindsight. Imagine what it would be like to time travel to advise Great-grandpa to adjust his investment portfolio on 28 October 1929, or tell Mum and Dad to invest in Microsoft or Apple when they were just starting out. While there’s no way of predicting what will happen in the future, we do know what’s happened in the past, and every now and then we get reminded just how delicate the balance between good economic times and bad ones can be.

In early June, the collective gasp of stockholders across the country – and the world – was clearly audible as the Australian stock market took more of a swan dive than a tumble, dumping close to $33 billion in just one day, following a crash on Wall Street. Losses were felt across the board: financials dropped 2.6 per cent, energy sank 2.2 per cent and industrials and materials recorded a 2.3 per cent fall in the worst market drop since June 2010. Then, barely two weeks later, our market dumped another $25 billion.

While it was a far cry from the $50 trillion that vanished from the international market during the Global Financial Crisis, it served as a very real reminder that although Australia was reasonably well insulated from the complete brunt of the GFC, we are nevertheless heavily influenced by the world economy, and a recession could very well be in our future.

Many people are nevertheless experiencing money trouble as a consequence of the GFC – and the current market instability is definitely a cause for concern. But, depending on the kind of investments you have, rushing for the exits may not be the best strategy. The best thing you can do right now is stay calm, take a careful approach and seek specialized advice before taking any action, because there’s no such thing as a ‘one-size-fits-all’ financial approach, no matter what the market is doing. Your strategy should depend on two things: the recommendations of your financial adviser and your personal financial circumstances.

Until someone invents a reliable crystal ball, coming up with an accurate proportion market, economic or interest rate forecast is never going to possible, but it always pays to notice the warning signs, keep an eye on the global economy and be prepared for in any case comes your way – starting with these three simple steps:

Reduce your risk

Get specialized advice about your investments! The ‘panic-button’ approach to a downturn in the proportion market may be ‘sell, sell, sell!’ but shares are a medium- to long-term investment – and selling your assets when they’re at a low point may not be a good option. At the same time, changes in the economic climate could also affect how much money you’re prepared to risk. You need to estimate both your investment timeframe and profile to develop the best strategy for reducing your risk.

Be ready

If you don’t already have one, now is the perfect time to set up an ’emergency fund’. This fund forms your ‘buffer zone’ against increased interest rates and redundancy, and should keep up around three to six months’ worth of living expenses. Keep your fund in a bank account with the best interest rate you can find, and don’t worry if you’re starting from scratch: every dollar you put aside will provide a little more security for your family.

Increase your value

Redundancy and recession go hand in hand, but valuable employees are typically more protected from economically pushed redundancy. Investing in increasing your skills in your area of skill, or learning an thoroughly new skill set altogether, will make you more valuable to your current employer and make it easier for you to find a new job if you are ever made redundant.

No one can predict the future, but when it comes to your finances it’s always better to be prepared than caught out. By making some simple changes you can get your family finances ready for in any case comes your way without having to rely on your great-great-grandkids to invent a time machine!

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