The Financial Crisis – are You Game Enough to Go Against the Pack?

Even with the election of the Obama team to White House, America remains in a state of uncertainty and gloom. This gloom has sailed across to the other side of the Atlantic where there is a slow increase of countries that are now saying that they are in recession.  The money pessimism seems to be everywhere you look.

There seem to be millions of opinions on why this occurred and another thousand on whether the bailout will help or even hinder the financial recovery.  A negative story seems to follow another negative story.

One positive financial news item that is gaining much attention is the lowering of interest rates by many central banks.   The Australian Reserve Bank lowered interest rates in October by 1% followed another 0.75% in November.  Many so called experts are predicting another sizeable fall in December and even more in February.  In this instance it seems the Australian rates will have fallen a whopping 3% in a matter of six months.  Several other countries have done the same with Britain reducing their rate by a massive 1.5% in one month.  Such extraordinary steps are almost unprecedented.

This represents a great opportunity for both home mortgages and investors.  Providing that you keep your repayments at the same level as they were before the rates drop, then there is a real chance pay extra off the capital.  There is no doubt that it will be very tempting for some used all of this excess money to purchase needed consumables and household goods.   Using all the money to spend on these products will only ease any short term pain.  Interest rates will eventually rise again so it’s best to eat into the capital now.  Reducing your debt is a very positive financial strategy in these times.

The same exists for investors who have borrowed money for investments that are now worth less than the borrowed amount.   As I have suggested in other articles if you can bear the pain then it’s best not to sell in this weak period and pay off any of the investment loan debt.  However, you should remember that investment loan debt in many countries is tax deductable so it is preferable to pay off paying off non investment debt e.g. credit cards and home loans.  With the lowering of interest rates there may be an opportunity to once again to reduce the non – investment loan.

Another opportunity exists for investors whereby cheap debt is now available for further investing.   Upon reading that statement many of you are thinking that investing now is risky especially in this volatile market. 

Many too will be scared if by that statement if you have invested using borrowed money in the last 12 months.  A good strategy is to pay off any off the debt using the method above.  However, as I have stated there is cheap debt at the moment and by recent accounts it could get even cheaper.

However, be cautious!!!!

Recently I have done some research on this topic through my own company http://www.karmafinancialresearch.com which indicates some of the lesser known funds have made money over the past year.  Generally these have made most returns of between 10 and 15%. Whilst it is not spectacular, it is certainly solid in terms of risk management as well as capital growth.    One such fund I have noticed is the Australian Unity Retail Property Trust which has made over 10 % in the last year.  So there is no real reason to have a blanket approach of never investing again.   Further many shares and managed funds can be regarded as cheap compared to 12 months ago especially blue chip stocks.   It is worth noting that Warren Buffet is currently swimming against the tide and BUYING STOCK.  

Low interest rates, low priced stock and proven investors are entering the market.  Are you game enough to go against the pack?

I am certainly not advocating adopting a high risk strategy over the coming months or even next year. I am certainly advocating that each of us should try to reduce or bad debts by taking advantage of our lower interest rates and do some solid research.