How you can prepare for the next interest rate hike
Over the past year there has been a lot of talk around rising inflation and interest rates, and how the RBA will handle the economy.
Following the eighth straight interest rate rise this week, the talk around mortgage stress has also increased and while I would like to be the bearer of some good news, unfortunately that is not going to happen, as I believe more rate rises are coming.
While interest rates have been rising to levels we haven't seen in over a decade, they are returning to historically normal levels.
Despite the fact that it makes sense to plan for such events if you have a mortgage, unfortunately the average household spends the majority of what they earn rather than planning for the future.
This explains why a large percentage of Australians cannot survive without an income for more than a few months.
So, how can households break this cycle?
- Never borrow the maximum of what a lender will lend; always leave a safety buffer.
- When buying a home, never borrow more than 80%
- When using a credit card or buy now pay later facility, only use it if you can pay it off the next month.
- Always categorise your spending into three key areas: what is essential (for bills, the mortgage, etc.) to maintain your lifestyle, what is important but not critical if you don't have it and spending on lifestyle choices, which you can do without.
There is an old saying from US footballer Jim Rice that states, "I will do today what others won't, so tomorrow I can do what others can't."
Before this year ends, take the time to sit down and plan, and then put it into action, so that by this time next year you will be in a much better position.
The best and worst performing sectors this week
The best performing sectors include Materials and Consumer Staples, which are both down under 1% followed by Utilities down just more than 1%. The worst performing sectors include Information Technology down more than 5% followed by Energy down more than 3% and Financials down more than 2%.
The best performing stocks include Fortescue Metals up more than 5% followed by Alumina up more than 4% and Orica up more than 3%. The worst performing stocks include Downer EDI down more than 23% followed by Block down more than 9% and IGO down more than 8%.
What's next for the Australian stock market
The All Ordinaries index is finally moving down for the first time in over eight weeks. As at the close on Thursday, it is down around 1.8% and has fallen through the previous major high setback in August of 7,386 points.
While investors are concerned about the Australian stock market and the economy in 2023, I don't believe they need to be overly concerned. While it is possible the economy could fall into a recession, I believe the All Ordinaries Index will perform better next year than it did this year.
The current move down is a normal part of market cycles and, as I have mentioned previously, there is strong support between 7000 and 7200 points or roughly 2 to 5% from where it is currently trading. If the market does fall a little further than those levels, I don't believe it will be by much.
Right now, I urge investors to treat the current fall as an exciting opportunity to buy good stocks at cheaper prices rather than with concern or fear, as I believe you will be well rewarded when the time comes to buy.
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