The financial environment is constantly changing.
Learning from those changes is a key part to successfully managing your money. And, gee, there were a lot of lessons to be learnt from 2018.
Sometimes the changes are small evolutions, sometimes those changes reinforce old themes, while others mean new opportunities or threats have emerged.
These are the 5 big money lessons we learnt as a couple from 2018:
MORE: David & Libby Koch’s 2019 predictions
MORE: How setting goals can make you richer this year
1) Sharemarket psychology, and computer trading, can often overshadow fundamentals
The sharemarket was a wild place to be 2018 … big losses at the start of the year, big gains in the middle and big losses at the end. Wild.
All at a time when the global, US and Australian economies were strong, inflation under control and company profits solid. Sort of didn’t make sense.
Having said that, markets have always hated surprises and uncertainty. And there were plenty of those last year.
The threats of a US-China trade war. The UK’s shambolic Brexit plans. The global government crackdown on the power of the FAANGs … Facebook, Amazon, Apple, Netflix and Google.
It seemed to be a year which bred market uncertainty. The problem is when investors get spooked they forget about fundamentals.
It’s then accentuated by computer trading which start automatically selling on a downturn … not because of a change of fundamentals but when a trigger price is breached.
2) Property fundamentals simply never change
So many people over complicate property and 2018 reinforced its very simple fundamentals … demand versus supply.
At the height of the recent 10 year boom in major capital city values, lots of property promoters were saying the Australian market was different, that it would just keeping going up. It wasn’t, and it will never be different.
The boom was caused by those simple fundamentals and the bust has been sparked by those same fundamentals.
The last boom was created by massive demand for property far exceeding supply.
The demand came from a combination of easy access to finance, a big increase in overseas immigration which needed housing and Chinese demand for investment property as they shifted money out of China.
The unexpected size of the demand caught property developers by surprise and it sparked a housing development boom. But the problem is it takes years to ramp up supply … buy the land, draw the plans, get council approvals, build the properties.
During that period values skyrocketed while waiting for new supply. When it came demand changed … finance was harder to get, immigration was slowing and the Government made it harder for the Chinese to invest here.
A huge increase in supply came onto the market at a time when demand was falling. Simple property fundamentals which never change.
3) Coping with an old fashioned credit squeeze means new behaviours
For years Australians have grown accustomed to cheap easy money. A period where banks have wanted to lend you money … sometimes more than you wanted.
In 2018, the era of easy money ended. An old fashioned credit squeeze emerged and it is continuing into 2019.
For a generation of Australians it’s a whole new experience. Rather than banks hosing credit at customers, they are now forensically assessing everything from income earning capacity through to savings experience and spending patterns.
Bank credit departments are being ruthless on who they approve loans for.
It has come as a shock for those who have previously been automatically approved for credit to now be refused or put through a more arduous approval process.
Now it is essential to have finance approved before making an investment or purchase and to protect existing lines of credit because new ones are much tougher to get.
4 ) Having a strong money relationship has never been more important
The financial pressure on average Australians has become even more intense and the subsequent strain on personal relationships can be enormous.
Yes there has been good jobs growth in the Australian economy, but wage rises have been minuscule and put financial pressure on family budgets. But we took some comfort from the fact our home values were rising strongly and superannuation funds were performing well on the back of a good gains from the sharemarket.
We were asset rich but cash poor.
But in 2018 property prices in our major capital cities started to fall and superannuation returns were hit by sharply falling share prices as markets became wild and scary.
So now the average Australian is being hit with the double whammy of tiny wage growth and falling asset values. It’s not pretty.
The start of a New Year is the perfect time to factor in this change with your partner when it comes to reviewing your financial goals and values. It may mean delaying some goals or changing priorities to reflect the new investment realities.
The important thing is understanding the changes and their impact. Not adjusting may mean goals could be unrealistic which then causes relationship strain.
5) Artificial Intelligence is revolutionising financial scams into an even greater threat
Long gone are the days when the infamous Nigerian Oil Scam tempted victims by an old fashioned “fax”. As technology has evolved, so have the scammers. They’ve become more sophisticated, more believable and way more dangerous.
Forget the move from fax to simple email requests for money, those emails can now contain viruses which (when opened) can infiltrate laptops and smartphones and trawl for personal information and passwords.
Email scams pretending to be your bank or Apple asking you to verify your account or iTunes passwords look so authentic, logical and convincing. The consequences of giving scammers access to financial accounts can be devastating.
Then there’s the fake social media advertisements using the image of well known people (as they have done with us) to lure people into buying dodgy products. Completely fake.
But in 2018, scammers started using Artificial Intelligence to prey on victims. We’ve had a barrage of aggressive phone calls alleging they are from the Australian Taxation Office or American lawyers threatening immediate legal action if we didn’t call a certain phone number.
It’s not until you listen carefully that the voice sounds slightly robotic. This is just the tip of the iceberg of what is to come. As AI gets more sophisticated, so will the scammers using it.