Investing and the economy
The biggest challenge for you is where to invest your money. It is true that investments can sour with a change in economic conditions, so it is important to place your efforts in accordance with your risk profile and level of comfort. Of course the opposite can happen and a change in the economy can really boost your investments; it’s all a balance.
Having mostly invested in property; I would say about 90% of my investment focus, outside of my business, have been property related. Why? Because it is my comfort zone! Sometimes it can be that simple!
Many years ago I worked as a consultant for a major Human Resources company, Morgan and Banks. They were the first Australian based Recruitment Company to deem their capital assets, being mostly resumes and data on companies, solid enough to float on the Australian Stock Exchange.
Each morning, when I arrived there was much talk around the coffee station as to how the stocks were travelling. After a few weeks, I rang a broker friend of mine and asked if I could buy $5,000 worth. He expressed his opinion that he wouldn’t bother investing in them; but when I explained about the camaraderie at work; he understood and purchased them for me.
Several years later I was in a bar at Noosa with a group of girlfriends from book club. A fellow was at the bar on his own having several drinks. When at the bar ordering around of drinks he told me he was celebrating the massive success of his shares. I explained that I wasn’t really into shares and I only owned a few. But politely asked him what shares, and you guessed it ~ Morgan and Banks shares. My $5,000 was now worth $37,500.
History & economics
Generally speaking if you look at history, countries that were once major trading strengths globally, over time can shrink to being a consumer. Likewise countries that were once at war with most of their continent and held massive lands today are meek and mild in comparison. Times change, countries change, people change and finances change. It is managing the change that is the key to wealth creation.
Most of these changes come down to purely economics. How a government responds to inflationary pressures, the rate at which one country has inflation against it’s trading partners is another, and other key economic factors and also the rate at which all of this change is occurring.
Sometimes inflation stimulates investments, and usually an inflow of funds from one country to another will involve switching currencies from one denomination to another. ie., Euro to $USD or $AUD. This will increase demand usually for the currency with the higher interest rate, because people seek the stronger return. This in turn creates more cash flow in that particular economy and usually triggers inflation. Its complex, but it is a consideration when investing in certain asset classes.
If Australia’s rate of inflation is above that of its major trading partners, the ability of domestic companies to compete is reduced because import can be obtained more cheaply. Ironically increases in inflation usually cause a decrease in currency.
There has been a major change in many countries in interest rates and inflation the last 20 years from 1980’s through to the 1990’s and they are still occurring in 2016. In more recent times, we have seen inflation diminish to levels not seen since the 1960’s….