How Economic Uncertainty is Affecting Investors
All of the uncertainty since COVID-19 arrived has been the cause of many people making different investment decisions.
I’d like to share with you factors that you should be mindful of so that you don’t end up making decisions which could ultimately cause self-sabotage and potentially set you back a few years.
Here in Australia, the control of the coronavirus has been relatively strict. The Australian Government is making its best efforts known to give us the sense that they are handling the spread of infection. For example, we’ve seen different cities go into total lockdown at various times.
There have also been various, relatively generous government incentives to support all kinds of businesses over the last nine months, such as JobKeeper.
However, there’s no denying that the financial and economic impact of lockdowns has been enormous. Though, I think that many people have been relatively tight-lipped about the impact because the full fall-out has yet to be experienced.
So, there are just a few insights I wanted to share some information I’ve observed from management consulting firms such as McKinsey & Co and some of the global economic public sources. While I am not saying that they are 100% right or wrong, I wanted to give you an idea of what this all means for you as a business owner and investor.
Uncertainty Makes It Toxic For Economic Recovery
There’s no question that, if we take a global perspective, there is so much uncertainty about how the virus will continue to spread.
And not only are people fearful from a health perspective, but the uncertainty also extends into livelihoods and businesses. Many businesses are finding it very hard to make reliable plans from personal investment and investment within their business.
So, if we take a macro perspective and think about what the government is trying to achieve, most governments’ objective is to crush the uncertainty as quickly as possible.
Mckinsey & Co have talked about statistics around what’s happened in the previous crisis and what they’ve shown is that when uncertainty subsides, confidence returns and economic recovery unlocks. From a statistical point of view, what they’ve shown is that COVID-19, as a crisis, has created the highest level of uncertainty in almost 35 years.
While the estimates of the global impact of COVID-19 varies from source to source, according to the McKinsey report, the estimate with those countries that are in near-zero virus situations (such as places like Australia and New Zealand) the impact could be as much as a lost GDP of about $15 trillion over the next five years.
That’s a pretty serious amount of money!
There are many different options that world leaders are exploring, such as the staged reopening of different economies, for example, and really just finding ways to strengthen consumer confidence.
And, I think whether people do it very quickly or very slowly or in parts, the bottom line is that each path is going to have very different economic outcomes for different people because the spread of the virus and the pace of recovery is truly going to be about how people feel about all the uncertainty.
Cultivate The Capacity to Make Good Decisions
I’m bringing all of this up because I believe that many of the commentators in the Australian market are currently describing an economic outcome as if the crisis has passed and business can continue on as usual.
I just don’t know if that’s the case.
What I would also say to you is that in a market filled with uncertainty, the investor market suddenly increases the intensity of the “FOMO message” – driving that idea that you’re missing out.
Something that I’ve been hearing from many investors over the last few months is that people’s prediction of a “property slump” hasn’t come to fruition; and so all of the literature and advice is saying, keep buying.
While there has been a considerable spike in property prices worldwide, I just don’t think the data is clear enough yet. The spike could be because of people’s improved confidence in the economics of the market or it could be a false spike, meaning the spike is simply as a result of people making decisions to change up their living arrangements.
Either way, I encourage you to tap into credible sources of information to make your decisions. In good times, the most significant way to ensure success is to make good investment decisions. And in bad times, the greatest way to avoid failure or setback and to continue to succeed is to keep making good decisions.
I call this “cultivate your capacity to make good decisions” or in other words, develop your capacity to do good due diligence.
The Five-Star System
I’ve got a system for doing this, that I call the five-star system.
You might have your own methodologies that you filter investments through before pulling the trigger. But what I highly encourage you to consider is, do not be enticed by commentary that comes from people who have a vested interest in you buying real estate.
Don’t make decisions off the back of that because nobody knows whether or not this growth that we’ve had over the last six months is sustainable or whether uncertainty is just a slow-building tsunami.
What I do know is that you should all be sharpening the pencil, making sure you set out rules for your own investing journey and really err on the side of caution.
That doesn’t mean stop investing. That just means that you’re committing to making sure that your investment decision-making isn’t based on inadequate evidence.
Make sure that you’ve given yourself a good cash buffer and that you are demonstrating amazing stewardship and care around the income and the finances that you already have. And if you are going to invest, make sure that your confidence in that investment decision is significantly high.
I certainly don’t want to predict disaster, but there are many credible people out there suggesting that we’re not out of the woods just yet. Just keep that in mind and instead err on the side of caution.
While you may not want to accept the worst, there are tonnes of statistical evidence pointing to the fact that we’re not quite in the clear yet and that continuing on as if it’s business as usual may be premature.
My advice to you would be to acknowledge the market’s uncertainty, not just here in Australia, but around the world, and don’t be easily influenced by weak evidence. Instead, focus on continuing to make good investment decisions that work for YOU and YOUR investing journey.
Let’s try and get as many investors heading in the right direction. Making good decisions will help you, and other investors or business owners navigate and survive the turbulence of the years ahead and succeed and win.
If you’re interested in fast-tracking towards being financially free, please check out my Freedom Warrior programs, where I help you get onto the path of generating a significant six-figure passive income through investing, get in touch today!
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