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Demystifying Investment Structures: A Simple Guide for Investors

Hello again all, Shane Brennan here. In the fifth article in my series, I’m exploring the world of investment structures. Imagine standing at the threshold of a vast financial landscape, each investment avenue beckoning with promise. Investment structures can .....

Wealth - 5 min read

All Australians are currently taking steps to protect ourselves and our loved ones from physical sickness. In this climate of rising unemployment, market volatility and a looming recession, it’s important that we look after our financial health as well.

While the future of the Coronavirus crisis is uncertain at this stage, there are simple proactive steps we can all take today to safeguard our wealth in the months and years ahead. Here are five practical ways to manage your money during the COVID-19 crisis.

 

1. Review Your Investment Strategy

Whether it’s through our superannuation or share portfolios, almost all of us have been affected by the market volatility caused by COVID-19. With the ASX 200 plunging over 35% during the initial sell-off in March, investors can be forgiven for becoming overwhelmed by market panic.

However, it’s important not to let emotions dictate your investment decisions, especially when they don’t align with your longstanding investment strategy. Making rash decisions now could undo years of disciplined investing, and significantly impact the future growth of your portfolio.  Before scrambling for the exit, review your investment strategy, assess your asset allocation with your financial adviser and identify any opportunities for adjustment.

If the current volatility has been too much to bear for your circumstances, speak to your adviser about further diversification once markets recover. You may not be able to reasonably avoid a retraction in your share portfolio in the short term, but you can better align your portfolio with your risk tolerance in the future. 

Remind yourself that although this is a significant economic event, markets rise and fall but almost always trend upwards over the longer term.

 

2. Strengthen Your Emergency Fund

An emergency fund is an essential financial safeguard and designed for uncertain times like these. A healthy emergency fund that can sustain you and your family through periods of unemployment can remove much of the financial stress these events can cause.

If your emergency fund is looking lean, bolster it with any excess cash before making discretionary purchases or using the excess capital to invest. With Australian unemployment likely to reach 10%, and the true extent of the economic damage of COVID-19 still emerging, a strong cash reserve should take priority over risky or unnecessary expenses.

In efforts to retain customers, some banks have held off on passing the entirety of recent interest rate cuts to savings accounts. Shop around for the best rate and put every dollar to work.

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3. Reassess Your Debts

Record low-interest rates take the shine off leaving cash sitting in savings accounts, but they also present opportunities if you’re paying down debts. With the RBA taking the unprecedented measure of cutting rates twice in a single month and signalling that rates will remain at their record lows for the foreseeable future, now can be a great time to refinance your home loan. 

If you’re in the unfortunate position where you can no longer meet your debt repayments, discuss your options with your financial adviser and your lender. The Big Four Australian banks have begun offering mortgage freezes in efforts to protect the property market from a significant downturn caused by mass defaults.

 

4. Revisit Your Expenses

Effective budgeting might be finance 101, however, for most of us, our weekly expenses have changed significantly in the past weeks, and revisiting your budget can highlight any opportunities to use any extra cash for more productive purposes.

For example, social distancing measures may have put an end to your discretionary entertainment spending for the time being. If you’re in the fortunate position where surplus cash can be safely used to invest in growth assets, now could be a positive time to put your money to work in bargain-rich share markets.

 

5. Take a Step Back

In times of crisis such as these, it’s easy to be swept up in the unrelenting news cycle and lose sight of your wealth strategy. If you’re agonising over every rise and fall of the market and hovering your finger over the Buy/Sell button, take pause to consider your long-term plan and how your decisions today could affect your portfolio tomorrow.

At Altus, our advisers are here to provide expertise, guidance and certainty when you need it most. If you have any questions regarding your wealth strategy, feel free to reach out to us today. We’re here to help.

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