{"id":3680,"date":"2020-08-17T00:00:57","date_gmt":"2020-08-16T14:30:57","guid":{"rendered":"https:\/\/adelaideprivatewealth.com.au\/financial-lessons-from-covid-19\/"},"modified":"2020-08-17T00:00:57","modified_gmt":"2020-08-16T14:30:57","slug":"financial-lessons-from-covid-19","status":"publish","type":"post","link":"https:\/\/adelaideprivatewealth.com.au\/financial-lessons-from-covid-19\/","title":{"rendered":"Financial lessons from COVID-19"},"content":{"rendered":"
The reality is, none of us can predict the future\u2014not even experts. It\u2019s equally true that good news is rarely perfectly predicted either.<\/p>\n
So, it could be said that the secret to life as an investor is not to predict the future, but to prepare for its ups and downs.<\/p>\n
Here\u2019s five financial lessons that are helping people get through the COVID-19 crisis.<\/p>\n<\/p>\n
Sharemarkets get disrupted all the time, from the 1987 Stock Market Crash, the bursting of the Tech Bubble in 2000, to the Global Financial Crisis in 2007 and COVID-19 today. Each trigger is different and the recovery time varies too.<\/p>\n
But investing with a long-term approach puts time on\u00a0your<\/em>\u00a0side. For instance, when investing in shares, your chance of a negative return gets lower the longer you invest.<\/p>\n The other benefit of long-term investing in growth assets like shares is that it is more likely to pay off.<\/em><\/p>\n Analysis from Credit Suisse tells us Australian shares have paid investors an average annual return of 6.7% per year since 1900. That makes us the second best performing sharemarket in the world over 120 years.1<\/sup><\/p>\n The compounding effect<\/p>\n One of the reasons sharemarket returns can be so high over the long term is that they generate compounding returns. That\u2019s where you earn interest on the interest (or growth on the growth) you\u2019ve accumulated over time.<\/p>\n Fundamentally, it\u2019s like planting a tree. As that tree grows, it gets taller\u2014but it also produces seeds that you plant to grow other trees. Those trees will also grow and produce seeds of their own. With enough time, you could turn one young tree into an entire forest.<\/p>\n Because the benefit of compounding returns are generally most effective over a long timeframe the longer your money has time to grow, the better.<\/p>\n Bottom line: if you can afford to put your money away for a lengthy period, you may maximise your chances of good returns.<\/p>\n Spreading your investments across many asset classes, countries, industries and even investment managers ensures you\u2019re not putting all your eggs in one basket.<\/p>\n The advantage of this\u00a0diversification<\/em>\u00a0is that when one area of your portfolio is falling – another may be rising. If you have money invested across many areas, changes in their values may balance each other out.<\/p>\n It doesn\u2019t mean you can avoid negative returns altogether, but it helps reduce the impact a fall in one asset class has on your total portfolio.<\/p>\n A savings fund for emergencies provides a financial safety net to draw on when you really need it. Nobody could predict that a pandemic would shut every pub in Sydney for months. But a prudent bar manager would have had some cash in the bank\u2014just in case something did.<\/p>\n And this doesn\u2019t require a lot of cash up front. You can transfer a small amount of your pay into a high interest savings account on a weekly, fortnightly, or monthly basis to build up your rainy-day fund.<\/p>\n Alternatively, you could have the money sitting in a mortgage offset account that provides the ability to draw back on your loan if you get into trouble.<\/p>\n A good rule of thumb is to have three to six months\u2019 worth of savings, but this varies depending on your circumstances. Speaking to a\u00a0financial adviser\u00a0may help to clarify.<\/p>\n Insurance helps to transfer financial risk from you to someone else, especially during unforeseen events such as the loss of income you could suffer if you become critically sick or injured.<\/p>\n It\u2019s important to ensure you have enough cover, the right types of cover and that your insurance is up to date \u2014 your needs as a single student at 20 are vastly different to your needs at 40 with a mortgage, partner and two kids. Make sure to read the policy fine print too as this covers any exclusions you may not be insured for.<\/p>\n Don\u2019t forget, if you\u2019re a member of a super fund, you\u2019ll likely have\u00a0insurance through your super. Now may be a good time to decide if this is something you want to hold onto or adjust to suit your needs.<\/p>\n Obtaining independent advice from a\u00a0financial adviser\u00a0can help you design a financial plan to achieve your own lifestyle goals\u2014whatever they are. Please contact us on |PHONE|.<\/p>\n They can also help you put the lessons of COVID-19 into practice. An often under-rated element of advice is that it helps people do common-sense things\u2014like investing long-term, staying calm in a crisis, putting away some cash and insuring your income.<\/p>\n 1\u00a0Credit Suisse:\u00a0https:\/\/www.livewiremarkets.com\/wires\/australian-sharemarket-wins-gold<\/a>2.\u00a0\u00a0\u00a0\u00a0\u00a0 Spread your investments out<\/h3>\n
3.\u00a0\u00a0\u00a0\u00a0 Set aside a savings fund for emergencies<\/h3>\n
4.\u00a0\u00a0\u00a0\u00a0 Review your insurance policies<\/h3>\n
5.\u00a0\u00a0\u00a0\u00a0 Seek professional help<\/h3>\n
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