Economy,  Life

Financial Lessons From 2020 (So Far)

Reading Time: 5 Minutes

Whoa ladies and gentlemen – it’s the midway point of what has been a VERY interesting year to say the least.

A big determinant of future success is leaning on past experiences and it’s always good to have a bit of self-reflection.

Therefore today’s post will be the perfect opportunity for that.

Now, before we begin – these are my lessons for my future self, you may agree, you may disagree but I do hope you find them thought provoking.

Lesson 1 – Nothing Beats Experience

I think 2020 has once again shown up the fundamental difference between book smart vs street smart.

I look back on my own experiences in academia studying economics and finance predominantly in university, then walking out and facing a world on the brink of ruin because US Investment Banks were slicing up risky mortgages, packaging them together, and dumping them onto unsuspecting victims – often times themselves.

I’d like to see how efficient market hypothesis or the sharpe ratio explain that.

A decade later, a biological event shuts down the globe overnight causing massive economic turmoil, unprecedented market volatility and unfathomable health impacts.

I’ve never studied nor prepared with how to act in these situations.

Lesson 2 – The Most Important Rule Of Making Money Is To Make Money

In February 2020, there were the astute amongst us who were saying that the market was over-valued and sold out. They looked like heroes in March… but how many bought back in and participated in the ensuing rally?

Similarly, there’s been those novices and first-timers who jumped all in during the lows, were then mocked by the seasoned pros for not understanding what they were doing.

Or had the spotlight shone on them as a microcosm with everything that’s “wrong” with the market.

But you know what?

If you are in the game to make money, and you make it through skill, guts, lunacy or luck – it doesn’t matter.

Money never discriminates with who owns it. The same goes with who loses it.

Such dedication.

Lesson 3 – Be Fearful When Others Are Greedy Et Al Is Just A Saying

I’m sure we’ve all heard this saying, it’s been repeated so often that not a day goes by when you don’t read it somewhere in personal finance.

Sure, anyone can throw investment mantras and quotes when times are good to sound smart and reassure themselves of their prowess.

But when you see your portfolio get cut by a quarter in a week, do you act greedy or fearful?

Only you will know.

Lesson 4 – Chucking Money At A Problem Works (Kinda)

Don’t fight the fed, or rather the various political machines out there.

A (dangerous) precedent has been set with the sheer number of government stimuluses I think.

I get we needed to stimulate the economy but I still think we are kicking the can down the road for future generations.

You can only throw so much money at a problem before that problem stops catching it.

However, the baseline rule of thumb in times of economic crisis, ever since the GFC and for all future economic crises, seem to be “throw money at the problem” – what are the long term effects of this?

No one knows. I don’t even want to speculate.

Lesson 5 – Forecasts Are Useless

I am an avid reader.

And when the big investment houses came out with their investment forecasts at the start of 2020, naturally I read up on a lot of them.

At this time, COVID was localized in China.

It was a mere paragraph or two in some forecasts whilst largely a footnote in others… and of course no one crystal balled the outsized impact COVID-19 had across the globe.

What? You’re telling me those suits with 6 and 7 figure salaries couldn’t predict the single biggest event in a decade?

Yes.

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“Trust me, I’m an economist”.

Lesson 6 – It’s Easy To Point Fingers When You’re Not The One Affected

I remember when COVID-19 first hit and certain countries were debating whether to implement full lock-downs or partial lock-downs, and yet still – some carried on business as usual.

WHAT?! I screamed.

The idiocy of these governments! Don’t THEY know COVID-19 is a PANDEMIC?!?!

S.E.L.F.I.S.H

I.D.I.O.T.S

And WHO are these people who let their government get away with this!

But I was wrong.

I was viewing the situation through my Australian lens – with our world-class free healthcare system, social safety net ($3,000 per MONTH), democratized government that actually respect the wishes of its people and a local population boasting one of the highest per capita income in the world.

If you didn’t have any of those, and your only means of putting food on the table for your family (literally) was to go out to work… it’s not really a binary decision is it.

Lesson 7 – There Will Always Be Black Swans

If we can understand that the world is not perfect and it will break every few years, then we will not over-react on the upside nor on the downside.

This is where a history textbook really does wonders.

The problem with this is that the world remains calm for just enough time to lull us into a warm embrace before violently shaking us all out of it.

There will be many of us with scar tissue from 2020 for a very long time.

But in 2030, something else will happen. 2040… 2050… it’s just life.

Reminds me of a saying, there will be years when nothing happens and weeks when years happen.

Lesson 8 – Never Think Your Job Is Safe

You may be the most valuable employee in the workplace, sweeping through every single award year after year.

But nothing can prepare you for a shutdown of your ENTIRE industry.

I remember growing up, for some reason, I always thought being an accountant was an ironclad job – “people always need accountants”.

But some of my closest friends (who are accountants) have lost their jobs and livelihoods.

The same goes with optometrists and dentists.

There is no such thing as a bulletproof job.

It was at this point Johnny re-evaluated his career choice.

This is why, for those of us in the younger generations, we MUST continue to learn or upskill.

Or at least have more than one stream of income – we can never be lax or sit on our laurels.

Lesson 9 – No Such Thing As A Sure Thing In Investing

For as long as I can remember, investing in real-estate in inner-city locations was seen as a sure thing.

You will “always” find a tenant, and capital growth only goes in one direction.

Well, rental vacancies in Sydney and Melbourne are now at historic highs, with the premium inner-city locations of the Eastern Suburbs, Inner West and Lower North Shore bearing the brunt of the vacancies.

This is because these desirable lifestyle locations, is where most renters want to live. From young professionals, to international students, to travelling backpackers.

Problem is, with widespread job loss, non-existent travel and forced closure of universities – has meant there are many landlords in a world of hurt.

Lesson 10 – Investing Is About Survival

The above only highlights one of the most important mantras I’ve always believed in.

Investing is not about making the most money, it is about surviving the longest.

Which is why it has never been more paramount to having an emergency fund.

Not only does it mean we have buffers to ride out any volatility and craziness but it means we can take advantage of any opportunities that arise.

I freely admit MrsFrugalSamurai has one up-(wo)manned me when it comes to taking advantage of the opportunities the market created.

But that is because I drummed into the importance of having an emergency fund dear… and gave you a few tips along the way.

“Winks at MrsFrugalSamurai”

“MrsFrugalSamurai does not wink back”.

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“Hahahaha”

Lesson 11 – Focus On Yourself

It’s easy to pat yourself on the back when your portfolio is up 40%, and your neighbour Jim’s only up 30%.

But when you’re down 30% and he’s down 40% and you feel happier – ask yourself, is that why you invest?

Investing is a game.

It’s a game we should play with our own scorecard.

Too often these days I see and read people posting their successes with a sense of ego attached.

I hold no ill will towards ego, ego and confidence is important in life.

But please tell me how you made that success so I can learn.

Lesson 12 – Stick To Your Principles

When things are crazy and unpredictable, the only way you will know whether what you did was right or wrong is to look back and ask yourself, whether you would have taken the same course of action.

I imagine it is the same in combat – when you have pieces of broken information flying at you from every direction.

It’s how you make sense of everything AND decide on what action to take that determines whether it sets you up for the future.

I look back on my actions and principles I set for myself in March with my personal portfolio, and have no regrets, because my action triggers did not hit.

It means my net wealth has barely budged, but if I had my time again – I would have acted in the same way.

Having principles allows me to focus, and to relax.

Because there will always be opportunities that present itself.

That’s just how it is.

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