Hi Everyone. Today we’re going to discuss a high sensitive subject: Housing/stock market crash.
As specifically housing. It’s not “if”, it’s “when”. I know I know, Australia is different, we’re a young country, the Lucky Country.
Here is the thing, even the dumbest people of earth like D. Trump sometime are getting it right: “We’re in a bubble right now, and the only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”
Interest rates are at the lowest in history: Great! Or is it? Interest rates is a tool used by central banks to stimulate the economy. But what if it doesn’t work? Then, it just creates what we are experiencing right now: A giant bubble.
When I hear that some of my colleagues with one salary are getting mortgages for triple the size of my unit (and we’re on two good salaries) to say to me: “If the interest rate goes up by 1%, I’m bankrupt”.
When I see that we can’t rely on our biggest economic partner numbers – China – China’s numbers are wrong?
When I see that EVERYONE seem to believe that real estate is always a good investment Or is it really?
All lead me to believe that we should be all careful or end up like this
So what do we do? Stop investing? Hide behind a wall waiting for the crash?
Obviously not, and this is what I did and am doing:
1/ Pay off your house asap:
I bought my unit, even if I knew that we were in a bubble. But I bought in 2013, just at the beginning of the boom. I also own an investment property. My goal is to repay the loans asap. Sure, I could gamble and use equity, etc etc.. In fact, there no month where I don’t receive a call/email from my bank inviting me to use my equity.
I have an offset account and I put everything I can. And I spend less then I earn. So that I own the bank less after the end of every month
2/ Put a safety net in place:
What if you lose your salary (laid off, injury, etc etc)? You should have at least 3 to 6 months (if possible more), in cash, just in case. Believe me, trouble occurs as you can read in My story
3/ Continue investing and be careful with your expenses:
There is one thing you can control: Your expenses. Market are up and down, and eventually crashes. But by controlling your expenses, you will be able to recover faster. I personally use Pocket Book. A great free tool.
Don’t pay attention to the news and keep on investing in value without too much debt exposure. You have way more chances to succeed than financial planners
LICs and index funds should be your best friends. Stay committed.
4/ Don’t trust government schemes and your colleagues: Do your research and due dilligence
Sounds silly? The only person’s judgement you should trust is you and your guts.
Negative gearing? Superannuation? As I read in the book highlighted earlier, “you should invest with the flow”. Really?
So why did we have a GFC then?
The only thing you should spend time on is educative yourself and read forums, and question everything.
5/ Start thinking of a way to diversify your revenues:
Another job? A side hustle? Investing in other countries/ currencies?
Every one will agree that best way to secure your future and your investments is by diversifying (assets and geography)
6/ Get the right level of insurances:
This is very true for us Australians as we have many insurances and very important ones, but many are also just not mandatory. They should be in my own opinion. Again, MoneySmart has some great articles on the subject.