What the global market meltdown means for your investing and wealth creation

In this week's Musing I talk about the headlines we've seen this week in the media about the global market meltdown and possible recession. But most importantly, I talk about what that means for your investing & wealth creation and some things for you to think about and do as a result.

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Transcript

 Hey, and welcome to Mel's Money Musings. Today, I want to talk about the headlines this week that have been so loud around the global market crash or the global market meltdown and even talks of a possible recession. And what I want to do is to talk about what it means for you, what you might do as a consequence, and also whether or not it provides an opportunity for you instead and maybe reframe how you think about those headlines.

Because essentially there were two events that happened this week or last week that meant that essentially the Japanese and the US markets caught a cold and the whole world to some respect felt like if you listen to the media headlines caught it, in retrospect and really you would in Australia be thinking well what does wage and numbers in the USA?

What does something that's happening in Japan have to do with the Australian stock market? And essentially what happens is share markets are made up of people. And when people get nervous, what they do is that they react. And what has happened in the last week is there has been a great big sell off of shares. And that is the reason why markets are crashing.

Now, yes, this is not nothing. You know, I think for one day the Australian market dropped 5%, it's not nothing. However, I really want to put this into perspective because really if you were investing and if you happened to look at your share account that day, sure, you're not going to love what it's telling you. However, investing in shares is a long term game.

You should have a timeframe of seven years plus. So if you are investing with that timeframe, then a market crashes during that time frame really shouldn't matter. And if you are investing regularly, which is something that is a fairly wise thing to do, then really your opportunity is that the market is on sale. Because what I see a lot as an investor is that people get excited when the market is doing well.

It really that when the market is often expensive and they're following the herd as it would. Yet when there are market drops like we've experienced this week, people get nervous. Whereas I want to reframe you to thinking that well really it's all on sale. So if you are regularly investing, it means that you're going to get more bang for your buck.

At the moment. And I don't know about you, but I love a sale. So tips that you can implement when things like global market crashes happen is one to go back to your goals to go back to. Why are you investing? What am I, long term goals? Does that still work for me and chances are the answer is yes.

This is still a wise thing to do and I should still be doing it to look at diversification. You know, global market crashes or any sort of market crash usually highlights diversification or even a lack of diversification in our portfolios. You know, if I only had investments in the US markets, then sure, I might be feeling this a little bit more at the moment.

If I only had investments in US tech stocks, then sure, when that particular niche sneezes or catches a cold or crashes, I'm absolutely going to feel it, which is why we don't just want to have diversification across assets like property shares, bonds, cash, maybe even business. We also want to have diversification in our investments. So, for example, we've property.

I wouldn't want my home to be in the same place necessarily my investment property when I'm investing in shares, I want to make sure that I'm across all of the industries and within this industries as well, which is why ETF are so popular, particularly those broad based index ETF, because it gives you so much instant diversification but three it’s also making sure we have that long term mind set

This is why we don't want our house deposit invested in shares, why we don't want our holiday next year to be invested in shares because there is so much volatility. And the reason is with property, it's so much harder to sell. There is so there's a time period I can't just in an hour's time decide I want to cash that in yet I can with shares I can gut react to what's going on.

There are algorithms that are buying and selling, depending on the immediacy of what's happening. That's not the case with property. So with shares, it's really important to understand that long term timeframe and the fact that you only lock in a loss when you sell. So yes, your your shares might have dropped 5% this week, but that's alright. That's a paper loss only, you only crystalised that if you sell and then it's just that really important to have great financial hygiene, you know, it's making sure I don't have bad debt, that I have a buffer, that I have some cash, so that if part of my if one of my investments doesn't do well,

I know that, you know what? I'm not stressed because really I'm going to be okay in about a while. The other thing I would add is maybe for a while just to apply some social distancing to our investments. You know, this is why I'm such a fan of automating our investing, because then it's not up to me if I'm reading headlines about global market crashes and going, maybe I don't invest this month.

If it's happening automatically the emotion is removed for me. So I'm a fan of automating but also socially distancing. If you're someone that is emotionally affected by what's happening on in the markets at the moment, don't look. So, you know, I'm not I'm just going to choose for the next quarter, next three months not to look at my investing and just to let this ride out and not to have that emotional reaction because, I’m not going to put eyeballs on it.

There's nothing wrong with that. So I hope that has helped to reframe what is happening at the moment and to help you realise that this is going to not just happen today, it's going to happen again. If I'm investing the next ten, 20 years, I'm going to expect a few of these during that time frame. And the more you can get used to it, the more you can reframe it, the more you can go, okay, yes, I knew this was going to happen as long as I don’t sell.

So everything's on sale am I diversified enough. You know, this is a good opportunity to reset, look at my goals, then everything is going to be okay. If you've got questions, if you want to hear a musing on a particular topic, just hit reply. And I'm super happy to the email that you would have received if you've been getting my emails.

Money musings. Or flick me a DM @melbrowne.money I’m super happy to answer questions and maybe include the thing that you want to hear about in a future musing.