The upside of a market downturn

Most people view share market downturns as unequivocally bad events. Suddenly, hard earned savings aren’t worth as much as they were yesterday. It seems as if our money is evaporating, and in the heat of the moment selling up can look like the best course of action.

 

The alternative view

On the opposite side of each share sale is a buyer who thinks that they are getting a bargain. Instead of getting 10 shares to the dollar yesterday, they might pick up 12 or 15 to the dollar today. When the market recovers, the bargain hunters can book a tidy profit.

So why do share markets experience downturns, and what are the upsides?

A range of natural and man made events can trigger market selloffs:

  • Terrorist attacks.
  • Infectious disease outbreaks such as SARS and COVID-19.
  • Wars, the possibility of war, and geopolitical issues such as threats to oil supplies.
  • Economic upheavals, the bursting of speculative investment bubbles, and market ‘corrections’.

In short, anything that is likely to reduce the ability of a broad range of companies to make money is likely to trigger a market sell off.

The common thread that runs through the causes of downturns is uncertainty. In the immediate aftermath of the 9/11 attacks nobody knew what the size of the threat was and markets dropped. As the fear of further attacks receded, markets soon recovered.

However, the initial drop in market value occurred quite rapidly. By the time many investors got out of the market the damage was already done. Paper losses were converted to real losses, and spooked investors were no longer in a position to benefit from the upswing. After the initial sell off it took the ASX200 Accumulation Index just 36 days to completely recover from 9/11.

Other downturns and recoveries take longer. The Global Financial Crisis began in October 2007, and it wasn’t until nearly six years later that the ASX200 Accumulation Index recovered its lost ground. This caused real pain to investors who bought into the market at its pre-crash peak, but for anyone with cash to invest after the fall, this prolonged recovery represented years of bargain hunting opportunities.

 

If? Or when?

Of course much hinges on whether or not markets recover. While history isn’t always a reliable guide to the future it does reveal that, given time, major share market indices in stable countries usually do recover. It’s also important to remember that shares generally produce both capital returns and dividend income. Reinvesting dividends back into a recovering market can be an effective way of boosting returns.

 

Seek advice

Of course, it’s only natural for investors to be concerned about market downturns, but it’s crucial not to panic and sell at the worst possible time. The fact is that downturns are a regular feature of share markets. However, they are unpredictable, so it’s a good idea to keep some cash in reserve, to be able to make the most of the opportunities that arise whenever the share market does go on sale.

For advice on how to avoid the pitfalls and reap the benefits offered by market selloffs, talk to your Bridges financial planner.

Five strategies to help your business

Five strategies for kick-starting your small business this financial year

As another end-of-financial-year rolls by, now is as good a time as any to undertake a bit of housekeeping and give your business finances a tidy up!

The daily grind and stresses of running a small business can often distract and exhaust many business owners leaving them rushing and unprepared as they approach the end of yet another financial year.

It’s that time when we draw a line under our business finances for one year, take a deep breath, and dive straight into the next.

This year, before leaping straight into it, why not stop and take a moment to take stock of your finances and begin the year with a fresh outlook?

These are our five ideas to get you started.

Insurance

The Australian government’s business website, www.business.gov.au can help you understand your compulsory insurance requirements, along with other types of cover you should consider, like personal insurances to protect yourself, your income and your family in the event you’re injured or become too ill to work.

Additionally, there are policies to protect your premises, your stock and machinery.

If you’ve had insurance for a while, perhaps shop around to see if there are better options that may provide a better deal for you and/or your business.

Tax planning

The start of a new financial year is perfect for developing a forward strategy. To get organised, and stay organised, throughout the coming year start by understanding your industry’s regulatory obligations and entitlements. Look at government concessions, asset write-offs and deductions.

Stay up-to-date with compliance responsibilities like, Single Touch Payroll, effective from 1 July 2019.

You should:

  • regularly review your profit and loss: monthly, quarterly, annually.
  • track revenue to ensure your billing and collection procedures provides adequate cash flow.
  • calculate and understand the cost of doing business; devote more time to activities that are the most profitable and help grow your business. You’ll be surprised how many business owners have little idea on the margins and profit on the various services and activities they provide
  • A good business adviser can help you put a system in place that will keep your tax records organised and up-to-date throughout the year, it may even make your tax accountant smile. Why not call them to arrange a time to talk it through?

Systems

If you’re doing things a certain way because that’s how they’ve always been done, it may be time to cast a critical eye over some or all of your business procedures.

Are there:

  • better, faster or more efficient ways of doing things?
  • technologies to simplify processes, e.g. point-of-sale (POS) systems?
  • process bottle-necks or duplicated steps that can be safely bypassed?
  • ways to automate manual processes like running reports, making appointments or paying regular accounts?

Business tracking

Staying on top of business performance, trends and cash flow can eliminate surprises by spotting potential problems and identifying supply and demand patterns.

Start by:

  • analysing data and trends from previous years or seasons.
  • looking for peaks and troughs in sales, job completion times and inefficient uses of labour.
  • identifying what worked well and what didn’t work so well.

Plan to grow

Once you know where you are, you can look for ways to move forward.

Whatever your business’s growth strategy is, be sure you have the resources to support it. Consider whether you’ll need to invest in machinery, supplies or specialist staff?

Now, update your business plan and review it regularly to stay focused on where you’re heading.

Running your own business is hard work, but it’s also one of the most satisfying and important things you can do.

Richard Branson once said, “A business is simply an idea to make other people’s lives better.” So, this new financial year, start refreshed and set yourself up to make your life, your family’s life and your customers’ lives even better.

Talk to us find out more.

Good debt or bad debt?

Is household debt consuming you?

By the end of 2018 Australia had, relative to the size of its overall economy, one of the highest levels of household debt in the world. At 127% of gross domestic product (GDP), our household debt, as a percentage of GDP, had nearly doubled over the last 20 years.

So, are Australian households groaning under the weight of oppressive levels of debt? For the most part the answer is surprisingly, no. A major reason for the increase in household debt is that interest rates are much lower than they were 20 years ago, so it’s easier to service larger loans. And over 90% of our household debt is owner-occupied home loans and investment loans.

Good debt, bad debt – is there a difference?

Home loans and investment property loans are often referred to as ‘good’ debt because, when used correctly and responsibly, they (usually) improve well being and build wealth over the long term. That said, poor property selection or unfortunate changes in circumstances – borrowing too much, loss of a job or an increase in interest rates for example – can quickly see ‘good’ housing debt turn ‘bad’ or even “toxic”.

Another type of bad debt is lifestyle debt (the worst kind). This has a negative impact on wealth because the debt is being used to buy things such as cars and caravans, clothing, holidays and electronic gadgets or appliances – things that lose value rather than gaining it. In today’s world it’s easy to accumulate bad debt.

Temptation galore – it’s a jungle out there

Credit cards, digital wallets on our phones, payday loans and buy-now-pay-later options all make it easier to spend money, even if it’s money we don’t have. Relentless, targeted advertising, the fear of missing out, the increasing level of peer pressure enabled by social media or just paying for daily essentials are all capable of leading us into spiralling debt.

Is debt consuming you? – these are the signs

Some warning signs that you have a debt problem include:

  • Not paying off your credit card in full each month. This means you will be paying a higher rate of interest on the carryover balance.
  • Your total debt is actually increasing month on month, along with your interest payments.
  • You’re experiencing housing stress. This means rent or mortgage repayments consume more than 30% of your pre-tax household income.
  • You’re using debt to fund basic living costs.

Taking control – make a plan

How to deal with your particular debt problem depends very much on personal circumstances, the amount of money you are comfortable wasting and the time frame you have before it consumes you.

  • Track your spending. Australians buy huge amounts of clothes they don’t wear, food they don’t eat and gadgets they don’t use or even open. For every purchase ask yourself, “Do I really need this or am I buying it to impress somebody I don’t even like?”
  • Consider selling items and junk that you no longer use or need. Maybe it’s an exercise bike in the shed or a third television that you have not used for three years. Either way, you’ll be surprised by the amount of junk you can rid yourself from by hosting a simple garage sale or posting an ad on websites like Gumtree.
  • Take out a lower interest rate personal loan to pay off high interest debts such as credit cards. Repay the loan as quickly as possible.
  • If you have a home loan, make sure it has a linked offset account that you use for everyday banking. You only pay interest on the difference between your loan balance and offset account balance, so all of your money is working to pay down your loan.
  • Review your home loan regularly. You may be able to refinance at a lower interest rate. Check for all the fees involved.
  • Talk to your financial adviser. They can look at your specific situation and recommend strategies that will put you in control of your debt rather than having debt consume you.

Contact Bridges Lake Macquarie today