For many investors, particularly those holding direct shares or approaching retirement, the GFC was a catastrophe that decimated their net worth. The plunge in the share market knocked billions off share prices and changed the retirement plans of a generation.
That was back in 2007 and many of them never recovered, despite the stock market grinding up from its lows.
Have you seen the headlines?
The World is a mess right now, and stock markets have been heading south. Chances are they will be falling further too.
People are dancing in the streets in Greece, celebrating a referendum to leave the Euro, while at the same time hundreds of thousands of its citizens are having to eat at soup kitchens, to avoid malnutrition.
Right now, in China, selling of shares has been restricted as the market is battered by wave after wave of panic selling. IPOs have been banned, broking firms have been told they must put in $26.5bn of their own cash into the market and all is not well.
Globally this is creating a ripple effect
How are some of your investments performing right now? Take Iron ore, for example – the impact of its plunge from north of $100 a tonne to $44 will reach well beyond the mining and mining services stocks.
Property prices in mining towns have been belted, impacting on bad debt provisioning and earnings growth for banks. In the case of one property on Edgar Street, Port Headland, it was renting at $2400 a week – now less than $500k. Ouch!
Even the bluest of the blue are hurting
The worst thing about this, for long term buy and hold investors, especially those who invest for dividend, is that while the percentage remains the same ie a 5% yield, the value of the shares that this is based on has fallen heavily. Nett result is that you are worse off than you were.
It is Financial Winter out there for a lot of people….
And just because they are down, doesn’t mean they can’t fall further. With Greece and China currently getting smashed in the markets, the risks are even higher that 2015 could be another GFC like collapse in markets.
So, imagine knowing that another GFC like event was happening and choosing to do nothing…
You see, many people are scared about the onset of financial Winter. Winter is the best season of them all, especially when you know how to ski! So what can you do about it?
There are plenty of strategies that you can be using to help insulate you from this risk. When I say risk , we mean here, the risk of doing nothing and losing a bundle.
So how about something which gives you peace of mind, or indeed that confidence and certainty about your future?
Well, you could do nothing, and hope something changes. Not really an investment strategy and that certainly hasn’t helped those souls that did this through the GFC and post environment.
“Money only flows to those people who are open to learning”
So here are just a few of the things that as an investor, you could be doing to help right now, to protect your investments and have the ability to continue to generate income, in spite of what the market has to throw at you.
How about a strategy that offers you guaranteed protection?
Great thing about this is that there is a more certain outcome – one where you know what your worse case scenario is. You have control, you have the ability to select the level that you wish to protect your shares for and critically, your protection policy is guaranteed by the Stock Exchange themselves.
Taking your positions out of the firing line and converting back to cash – but not in the usual way of simply selling out of the stock, then order a ton of canned food and move into a bunker!!
No, instead, how about maintaining your market exposure but only using a fraction of the money. This is a very different approach and almost certainly worth a look, particularly if you are less convinced things are falling away.
Trading the short side of the market is all about actually looking to profit from a falling market. Sounds a bit like a concept? No, again, like all our approaches, this is a well time tested process that works well. For example, if you used this sort of strategy in conjunction with your portfolio, effectively you are hedging.
Alternatively if you are simply using this strategy from a point of view that markets are going to fall, then you are speculating. This is naturally very profitable if your view proves correct.
Either way, you are in a potentially far better position than someone that is doing nothing and hoping things pan out!! Don’t be that person that in a few months, is thinking “I wish I had…”
Thinking like a trader
This is a big mindset shift for many, as trading is often seen by some as a more risky approach. In actual fact, based on the above, this more proactive approach is far less risky than simply buy/hold/hope.
What we are referring to here, is the ability to respond to what is happening and capitalising on that effect, rather than bunkering down and potentially getting smashed by what may come. Effectively by being more proactive you have the opportunity to trade the markets in 3D, not 2D – or, if you will, you are playing chess with your portfolio – plenty of strategy and tactics, instead of simply checkers – buy and hold – where your moves are far more restricted.
Perhaps ask yourself a question…
Thinking back to the GFC, what would you have done differently, if you had your time over again? Probably a few things, we would imagine. Maybe you would have sold out, or just maybe you would have taken a more proactive approach, perhaps including some of the strategies identified in this article.
Either way, doing something is better than doing nothing and hoping that something will change. Now of course, back then, you may not have known about these types of strategies, and so you could be forgiven for not doing anything.
However, now you do know – knowing about something and then choosing to do nothing can be very costly, so don’t let it happen to you.
If you got burnt in the GFC, don’t let the same thing happen again here – take a slightly different path and get a very different outcome!