Five hard lessons we learnt

Mistakes made in 2018 will affect this year’s financial decision making

THE financial environment is constantly changing.

Learning from those changes is a key part to successfully managing your money. And, gee, there were a lot of lessons to be learnt from 2018. Sometimes the changes are small evolutions and sometimes those changes reinforce old themes, while others mean new opportunities or threats emerged.

These are the five big money lessons we learnt as a couple from 2018:

1 Sharemarket psychology, and computer trading, can overshadow fundamentals

The sharemarket was a wild place to be 2018: big losses at the start of the year, big gains in the middle and big losses at the end.

All at a time when the global, US and Australian economies were strong, inflation under control and company profits solid. It didn’t really make sense.

Having said that, markets have always hated surprises and uncertainty. And there were plenty of those last year: the threat of a USChina trade war, the UK’s shambolic Brexit plans, and the global government crackdown on the power of the FAANGs (Facebook, Amazon, Apple, Netflix and Google).

It seemed to be a year which bred market uncertainty. The problem is, that when investors get spooked, they forget about fundamentals.

It’s then accentuated by computer trading, which starts automatically selling on a downturn – not because of a change of fundamentals but because a trigger price is breached.

2 Property fundamentals simply never change

So many people over-complicate property and 2018 reinforced its very simple fundamentals: demand versus supply.

At the height of the recent 10-year boom in major capital city values, lots of property promoters were saying the Australian market was different – that it would just keeping going up. It wasn’t, and it will never be different.

The boom was caused by those fundamentals, and the bust sparked by those same fundamentals.

The last boom was created by massive demand for property far exceeding supply. The demand came from a combination of easy access to finance, a big increase in overseas immigration and Chinese demand for investment property as money was shifted out of China.

The unexpected size of the demand caught property developers by surprise and it sparked a housing development boom. But the problem is, it takes years to ramp up supply – to buy the land, draw the plans, get council approvals and build the properties.

During that period, values skyrocketed while waiting for new supply. When it came, demand changed: finance was harder to get, immigration was slowing and the government made it harder for the Chinese to invest here. A huge increase in

supply came on to the market at a time when demand was falling.

3 Coping with an oldfashioned credit squeeze means new behaviours

For years Australians have grown accustomed to cheap, easy money but in 2018, this ended. An old-fashioned credit squeeze emerged and it is continuing.

For a generation of Australians, it’s a whole new experience. Rather than banks throwing credit at customers they are now forensically assessing everything, from income-earning capacity through to savings experience and spending patterns.

Bank credit departments are being ruthless on who they approve for loans. It has come as a shock for those who have previously been automatically approved for credit to now be refused or put through a more arduous approval process.

Now it is essential to have finance approved before making an investment or purchase and to protect existing lines of credit, because new ones are much tougher to get.

4 Having a strong money relationship has never been more important

The financial pressure on average Australians has become even more intense and the strain on relationships can be enormous. In 2018, property prices in major capital cities started to fall, and super returns were hit by sharply falling share prices.

Now, the average Australian is being hit with tiny wage growth and falling asset values.

The start of a new year is the perfect time to factor in this change with your partner when it comes to reviewing your financial goals and values. It may mean delaying some goals or changing priorities to reflect the new investment realities.

5 Artificial intelligence is making financial scams even greater threats

Scammers are now more sophisticated and believable – and way more dangerous.

Email scams pretending to be your bank or Apple asking you to verify your account or iTunes passwords look so convincing. Then there are the fake social media ads using the image of well-known people (as they have done with us) to lure people into buying dodgy products.

But in 2018, scammers started using artificial intelligence to prey on victims. We’ve had a barrage of aggressive phone calls alleging they are from the Australian Tax Office or American lawyers threatening immediate legal action if we don’t call a certain phone number.

This is just the tip of the iceberg. As AI gets more sophisticated, so will the scammers using it.