- April 15, 2015
- Kate Sheehan
Are we in an asset bubble?
Lately, there’s a lot of talk about whether the current growth in our stock and property markets is sustainable.
It’s important to think proactively about your assets so you can avoid the pain that comes with being caught when a bubble actually bursts.
We have a lot of household debt in Australia when you compare us to the rest of the world. In the event of another financial crisis, debt just increases the pain.
With interest rates falling and people looking for the best rates for their money, the stock market pushes higher and peoples’ love of real estate has not yet been curbed even with the high prices.
What can you do in this environment?
As a general guide, you may like to consider:
- Look for current value in the stock market. Don’t follow the herd. Instead, head for currently overlooked stocks that hold true value at a great price. These are less likely to suffer from a burst bubble.
- Avoid chasing the ‘hot’ stocks that are overvalued eg. currently banks and healthcare
- Take some profits from the stock market on the way up. If you have made good profit don’t get greedy and leave it all sitting there in the hope it goes higher. No one can tell when a boom will end so be prudent and take some money off the table.
- Get some advice and consider increasing the money you have in cash, depending on your personal circumstances, amount of time to retirement and risk tolerance.
- Pay down debt. Remember, in the event of deflation, debt is the enemy.
- Avoid taking on more debt. With low-interest rates, there’s currently a lot of temptation to borrow more than you should.