When I was deciding on which horse to back, Protectionist stood out like a neon light for me. Not because I know anything about horses or racing, but just because of the name – I liked the sound of security and protection.
I know how important it is to have assets protected, especially now with so much uncertainty going on in the world. Stock market protection is key to surviving difficult financial times and coming out a winner on the other side. I think having a protection strategy is prudent in the current stock market environment.
You see, there are major global trends happening right now in the markets that will eventually affect Australians.
One trend in particular that most investors aren’t aware of is ‘deflation’. In deflation, asset prices (such as property and stocks), go down. All Governments fear deflation because it is so hard to contain. The biggest threat to investors and retirees is the threat of global deflation.
The Japanese have been dealing with deflation for 23 years. Their asset prices such as property and stocks went down 80% on 0% interest rates. So desperate are the Japanese Government to re-inflate assets prices, they announced last week a further monetary stimulus package of 80 trillion Yen (1 trill A$) to try and cause inflation. This huge level of money printing is radical and unprecedented.
This strategy is untested and so the big question remains, will it work? Unfortunately, nobody knows the answer to this right now. In the meantime, the impact this stimulus will have on the rest of the world is adverse. With the Yen being devalued against all other currencies, this makes Japan more competitive but it also makes it harder for other countries to compete on exports. This will eventually mean more job losses. Instead of European cars, more of us will be driving Mazdas and Hondas.
When Cash is King
If you don’t think deflation will affect you, think again. With many Australian’s counting on property doubling in the next 10 years, they have taken out interest only loans. But what if instead of inflation, deflation hits, by say 20% – it would mean if you have a house worth $900K with a $800K mortgage, the value of your house may fall to $720K. In a deflationary environment, you definitely don’t want high levels of debt! Cash becomes ‘king’. We are also seeing commodities going down and many losing their jobs. I see the two biggest threats to Australia as deflation and rising unemployment.
With the threat of deflation a possibility, how will you protect your assets?
Stock market protection strategies and preserving capital is what we focus on at Wealthwise Education through our structured programs.
Protectionist was the winner of the Melbourne Cup. Our goal is that you will become a winner with your finances.