The January Barometer: Financial Planning
Markets don’t take a break, and neither should your financial planning. This was the key takeaway from Remo Greco, a financial advisor, in a recent interview on ABC Radio Melbourne. Here’s a breakdown of the key themes discussed and how they could help you manage your financial future.
Market Punches and Financial Planning
As Mike Tyson once said, “Everyone has a plan until they get punched in the face.” For investors, market downturns can feel like a punch in the face. Greco highlighted the importance of having a robust financial plan to navigate such challenging times.
A good financial plan anticipates market volatility. By preparing for downturns, investors avoid making emotionally driven decisions, like selling at the bottom of the market. Instead, they can stay the course and benefit from the eventual recovery.
The January Barometer
January 2023 marked the best month for global markets since the 1970s, a phenomenon dubbed “The January Barometer.” Historically, strong January performance has been an indicator of a positive year ahead, with an 80% chance of a strong market. While history isn’t a guarantee, this insight underscores the potential opportunities for long-term investors.
Alternatives to Bank Interest Rates
With rising interest rates, there are more opportunities for income-focused investors. Options include:
- Term Deposits: Lock in rates of up to 4%.
- Bank Hybrids: Offering returns of around 6%, hybrids are higher-risk but provide greater yield.
- Corporate Bonds: Yielding around 5%, these offer a balance of risk and return.
Greco advised considering risk tolerance and liquidity needs before choosing these instruments.
Superannuation: What You Need to Know
Superannuation funds report total returns, including dividends and capital growth, but they don’t always break these down. For those managing their own investments, the focus should be on total returns rather than individual components.
Greco also emphasized the importance of planning for retirement, particularly for those in their 50s. Many people start planning later in life, which can be beneficial given the tax and superannuation opportunities available as you approach retirement age.
Diversification and the Role of Financial Planners
A diversified portfolio remains key to managing risk. This includes investments in shares, property, cash, and other assets to ensure stability across market cycles.
For those wondering whether they need a financial planner, Greco explained the value of guidance. While apps and online tools provide information, a financial planner helps distill it into actionable insights, using their “highlighter pen” to focus on what matters most for your unique situation.
Common Investor Questions
Some listener questions highlighted common concerns:
- Selling Shares for an Overseas Holiday: Greco recommended selling underperforming assets first, comparing it to pulling weeds from a garden.
- Short-Term vs. Long-Term Term Deposits: Locking in a 12-month rate of 4% might be more prudent than hoping for better rates in the short term.
- Investing in Lithium Stocks: Be cautious of the hype. Focus on companies with low production costs to weather price fluctuations.
- Paying Off Mortgages with Investments: Using an offset account to save on non-deductible mortgage interest can be a smart strategy, but watch for potential capital gains tax when selling shares.
Key Takeaways
- Planning is essential for navigating market volatility.
- January’s market performance could signal a strong year ahead.
- Explore alternatives to traditional savings for higher yields.
- Start retirement planning early, focusing on diversification and understanding total returns.
- Seek professional advice when navigating complex decisions.
Investing is a journey, and the best way to stay on track is to have a plan that accounts for both opportunities and challenges. As Greco aptly put it, “Bad times will come. If your plan expects that, you won’t be bullied into poor decisions when they do.”
