Be wary of those forecasts of doom

ARE we heading for another crisis? Some commentators would have you believe so.

We are a far cry from the GFC and subsequent crises since, particularly in Europe. Debates are continuing about the euro and whether it may collapse.

Fear has seen global bond holders exit positions, which has increased volatility.

If you are an investor, the most important thing you can do is to think carefully after you read opinions that may make you fearful. It is important to remember they generally paint the worst-case scenarios, and as history demonstrates, what is reported in advance and what happens is quite different. In other words, the worst-case scenarios rarely unfold. So what can you do? Firstly, remember it is how you handle your thoughts and manage your risk that matters most. Risk management does not mean locking your money away in a term deposit. In my opinion, that is like being an investment “ostrich”, and burying your head in the sand. Investment decisions need to be based on rules, not emotion or gut feel.

The point is, you must know in advance of making a decision what your strategy is to keep your money safe, while still having the opportunity to profit when investments rise. Above all, know the level of risk you are willing to take to get a certain return. That way, you will be confident about what you are doing regardless of what happens on the other side of the world.

So, what do we expect in the market?

The Australian market’s rise this week demonstrates renewed buyer sentiment. The All Ordinaries Index has traded well clear of a strong resistance level about 6000 points.

This level was strengthened in 2015 when the market reversed and fell by about 20 per cent, however, the Australian market has continued to climb, trading to a high of about 6348 points yesterday.

With wages growth sluggish, there is currently little concern about inflation taking off. This means we are likely to see the RBA leave rates on hold for some time, which gives borrowers certainty about their commitments. However, it makes life challenging for anyone who persists with cash investments. Dale Gillham is chief analyst at Wealth Within