Five hard les­sons we learnt

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

The Gympie Times - - MONEY SAVER HQ -

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:

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.

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.

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.

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.

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.

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