Speaker 1: Welcome to the Friends with Money podcast, brought to you
Speaker 1: by Money Magazine, creating financial freedom for Australians since nineteen
Speaker 1: ninety nine.
Speaker 2: Hello, you're listening to Friends with Money. I'm Michelle Baltasar,
Speaker 2: editor in chief at Money Magazine. Thank you for joining us.
Speaker 2: Today's episode is about recession proof investing. Can we really
Speaker 2: protect our savings from the ups and downs of the
Speaker 2: market or are there guiding principles that we need to
Speaker 2: stick with through thick and thin. Joining us today is
Speaker 2: Money Magazine founder and editorial advisor Paul Clitherow. Paul, it's
Speaker 2: a pleasure to have you back on Friends with Money.
Speaker 3: That's always my pleasure for show.
Speaker 2: Last year on Valentine's Day, the ASX two hundred was
Speaker 2: sitting on a record high of eighty five hundred forty
Speaker 2: points and then it went down to seven three hundred
Speaker 2: points after the Trump's tariff announcements. I hit the panic
Speaker 2: button and I said, I need to talk to Paul
Speaker 2: and tell me give me perspective around this. And by
Speaker 2: the time we're doing this episode, the a SX two
Speaker 2: hundred is back up to eighty one hundred points. So
Speaker 2: tell me, what do we tell our readers about this
Speaker 2: volatility in the market.
Speaker 4: Well, look, it's.
Speaker 3: Probably a good time to be doing it, isn't it.
Speaker 4: I mean, look, with hindsight, I would have rather told
Speaker 4: you at seven three hundred points, which you know, I
Speaker 4: would have done what I've been think for forty years now.
Speaker 4: At seven thy three hundred, I would have been saying, look,
Speaker 4: what we know from history is we know that this
Speaker 4: global tariff and trade issues is something.
Speaker 3: Sort of new.
Speaker 4: We've always had trade wars going on back into the
Speaker 4: fifteen hundreds, by the way. But the reality is is
Speaker 4: that the only thing I know backed up by many, many,
Speaker 4: many hundreds of years of history. The only thing that
Speaker 4: I know is each time we're in one of these events,
Speaker 4: our flight fear comes into play, and that we fear
Speaker 4: that the sky is falling, and we do the chicken
Speaker 4: little thing. We run around circles, cluck cluck, clucking, the
Speaker 4: clever the sky is falling, the sky is falling. But interestingly,
Speaker 4: over the long run, the sky has never falled.
Speaker 3: And here we can use the really.
Speaker 4: Probly the worst of all the downtterms, the Great Depression
Speaker 4: of the eighteen eighties. You know, we can go into
Speaker 4: the Great Depression of the twenty nine ninety thirty where
Speaker 4: markets fell eighty six percent. Now that would get your
Speaker 4: little feathers ruffled, Michelle, Wow, yeah, eighty six percent. That's
Speaker 4: that's pretty something, right. And by the way, the one
Speaker 4: nasty piece of evidence in panicking selling and not doing
Speaker 4: that or doing or panicking and sewing, it's interesting, is
Speaker 4: really only the Great Depression of twenty nine thirty because
Speaker 4: they're because the falls were so enormous and the global
Speaker 4: economy was so devastated. It took literally nearly to World
Speaker 4: War nearly nearly, you know, right through to World War
Speaker 4: II the markets to gain full recovery. So that's an
Speaker 4: example that's an awfully long time to wait to get
Speaker 4: your money back. Are they you divid and still flow?
Speaker 4: By the way, But so basically the thing I've always
Speaker 4: said it is that we know the rule. The rule
Speaker 4: says we sell in that we know we sell in
Speaker 4: the highs, we buy in the lows. Great advice, but
Speaker 4: none of us have got the first clue where the
Speaker 4: highs and loose are, despite all the other stuff you
Speaker 4: read in social media and heavens knows where else. It's
Speaker 4: why Money magazine doesn't run headlines saying sell everything now,
Speaker 4: or sell your house and buy shares, because look a
Speaker 4: sensible people, we know it's probbit showre we you know,
Speaker 4: we know, we don't know. And so this concept if
Speaker 4: you're of a personality where anytime a market fell, you're
Speaker 4: going to start losing sleep and go into the cell mode, bluntly,
Speaker 4: you actually shouldn't own things like shares. An advantage of
Speaker 4: property is, by the way, usually in these cycles your
Speaker 4: property is falling in value just as quickly, but you
Speaker 4: don't know about it.
Speaker 3: Properties.
Speaker 4: Michelle's house is not listed on the share market, and
Speaker 4: so if Michelle has covered a house had fall them
Speaker 4: a value two hundred thousand dollars today or yesterday, Michelle
Speaker 4: Shell doesn't know. What I find really funny about people
Speaker 4: is that they go, it's okay, Paul, I'm not worried
Speaker 4: about my property. If you're lucky enough to own a property,
Speaker 4: I'm not worried about my property falling in value. It's
Speaker 4: going to recover. And I say why is it going
Speaker 4: to recover? And they say, well, Paul, the population of
Speaker 4: Australia in the world is growing, and more people means
Speaker 4: more houses. And I go, spot on, you've nailed the
Speaker 4: property argument, but why does that argument not work for
Speaker 4: Woolworths or the Commonwealth Bank or CSL or BHP or
Speaker 4: whatever else, Because it really is exactly the same process
Speaker 4: in our economy. Wooly sells food Fairven's sake, so I
Speaker 4: own Wooly shares. The only thing that's eavi going to
Speaker 4: threaten me and threaten my view on the value of
Speaker 4: property is if our population shrank due to some crisis.
Speaker 4: Now take Mubonic plague in the thirteen thirty forty nine
Speaker 4: Take there. So there we do know for a fact
Speaker 4: that extra records in Venice a bit over half the
Speaker 4: population died. That is not good for Woolworths or property.
Speaker 4: But basically what we do know is we people, us
Speaker 4: little people running around buying a lay of bread as
Speaker 4: I did this morning, buying the leader of milk. We
Speaker 4: are sixty eight percent of the economy, just us trotting
Speaker 4: around doing our thing. And it is one of the
Speaker 4: reasons why Australia has done okay the last but twenty
Speaker 4: odd years. Is I know there are all sorts of
Speaker 4: views on immigration.
Speaker 3: I'm an immigrato. I came up from England as.
Speaker 4: A ten quid pomp when I was eight years older,
Speaker 4: Mum and Dad and my sister. So I'm one of those.
Speaker 4: But funnily enough, in my own little way, I've added
Speaker 4: to the economy as well. Built a business, employed people,
Speaker 4: pay tax, bought a lay of bread. So a great
Speaker 4: part of the economy is just us pottering around. The
Speaker 4: reason I call back to common sense about not selling
Speaker 4: is it makes sense to have common sense. The world
Speaker 4: population is growing austraight. As population is growing, demand for
Speaker 4: housing is growing. We'll come to that later. Demand for
Speaker 4: loaves of bread is growing, Demand fruit and vegetables, banking services, insureance,
Speaker 4: you name it. Demand is growing, right, It's just more people.
Speaker 4: It's pretty simple really, So basically, when a market falls,
Speaker 4: I also feel like selling, but every fiver in me
Speaker 4: knows it's wrong based on history. The history of property
Speaker 4: goes back seven thousand years, history of shares goes back hundreds.
Speaker 4: Businesses have been in the economy for seven thousand years.
Speaker 4: As long as we've been alive, we've either made bread
Speaker 4: or done something. We are a business based economy, so
Speaker 4: it's really important just to sort of You've got to
Speaker 4: get that little person in you telling you, oh my god,
Speaker 4: this is different. This is different. The end of the
Speaker 4: world is coming. I must sell and laree.
Speaker 3: That's what I was.
Speaker 4: I thought I would have said to you a few
Speaker 4: weeks ago at seventy three hundred, and it's kind of
Speaker 4: nice today it is back at eight thousand, because you know,
Speaker 4: this is no great surprise. In particular, at the moment,
Speaker 4: you have an unusual situation where one person basically is
Speaker 4: pulling triggers that can impact them traumatically. But that person
Speaker 4: pulling those economic levers around tariffs and stuff.
Speaker 3: He's not having the population, he's not.
Speaker 4: Doubling the population. We've still got fundamental economic growth in
Speaker 4: the global clan.
Speaker 2: It's so comforting to hear all that, because sometimes it
Speaker 2: feels like we're a nation with a memory of a
Speaker 2: goldfish about how markets work. Right, And now we have
Speaker 2: JP Morgan saying the chances of a recession has gone
Speaker 2: up from thirty percent to sixty percent to now ninety percent.
Speaker 2: So yes, the markets have bounced back, but if there
Speaker 2: is a global recession around the corner, it's never too
Speaker 2: late to save, it's never too late to not be
Speaker 2: wasteful of your money, and certainly you want to stay
Speaker 2: in the market because it's about time, not timing in
Speaker 2: terms of your shares and property. Is that a fair
Speaker 2: recap of what to do when there is uncertainty still
Speaker 2: and as you've rightly pointed out, some people are going
Speaker 2: through really tough times.
Speaker 3: Oh absolutely, in simply in the economy.
Speaker 4: The reality is in the biggest boom where you know,
Speaker 4: some years you will make thirty or forty percent of chairs,
Speaker 4: just the way that some years you'll lose. Thet's the
Speaker 4: way it over time, history says you go to average
Speaker 4: around that ten or eleven percent including giveness. So basically
Speaker 4: that doesn't really do much for people who don't own
Speaker 4: any shares and don't have any super The reality is
Speaker 4: we're always going to have for a whole bunch of reasons,
Speaker 4: from family breakdowns, ill health, mental health, cancer. You know,
Speaker 4: there is always going to be even the best of
Speaker 4: biggest of booms, there are always going to be people
Speaker 4: doing it tough and it could well be one of us.
Speaker 4: And your points are right if you've got a bit
Speaker 4: of a buffer and savings and so on. But these
Speaker 4: are all these are lovely things to have. And I
Speaker 4: mentioned already the pressure of the human sulfur under in
Speaker 4: ninety ninety one inustrated a mortgage eight at seven percent,
Speaker 4: had to sell both cars and so on. But the
Speaker 4: big thing was that I actually didn't lose my job
Speaker 4: in that procession. And if I'd lost my job in
Speaker 4: that procession, because Vick was home with the kids, luckily
Speaker 4: she could have gone back to teaching because she's on
Speaker 4: maternity leave. That was a real safety factor for us.
Speaker 4: If I lost my job, it's another diversification, diversification plan,
Speaker 4: I guess in a relationship. And so we said, well,
Speaker 4: Paul lose his job in that particular time, which is
Speaker 4: not impossible, and the employment got up towards nine percent.
Speaker 4: Then we thought, well, I'll be coming at home dad,
Speaker 4: And we were in that we were lucky, lucky of
Speaker 4: the many. But Vicky could go off portunity to leave
Speaker 4: them back into teaching. So but that's purely to us.
Speaker 4: But you know, we'd like to sell both cars and stuff. Look,
Speaker 4: it's not particularly pleasant, but I think the younger generation
Speaker 4: had been through. We're now talking about those who are
Speaker 4: not doing it really tough today. But we are going
Speaker 4: to see, no matter, how will we manage the economy
Speaker 4: with the amounts of debt we're racking up at federal
Speaker 4: levels and so on, and everyone's seeing the deficits going forward.
Speaker 4: It's always risky for an economy to carry lots of debt,
Speaker 4: so sooner or later something we don't predict, And the
Speaker 4: only thing I can predict is we won't predict what happened.
Speaker 4: Is the Trump thing something we've never been through before, Yes,
Speaker 4: it is. We've had trade wars before, we had tariffs
Speaker 4: being Yet this is going off thousands of years charging
Speaker 4: people to bring goods into your country. That's back to borders.
Speaker 4: But this is unique, But it's no more unique than
Speaker 4: the failure of Lehman's It's no more unique than the
Speaker 4: nineteen ninety dot com bust. Why did pick a single
Speaker 4: one of that is? I didn't pick this Trump stuff,
Speaker 4: even though it was failure. The tariffyed was pretty He
Speaker 4: spoke about it a lot, but I had no idea
Speaker 4: if it was bluff or bluster, and I figured it
Speaker 4: had hurt Americans more than anyone else, which is the
Speaker 4: likely outcome. By the way it may affect all it
Speaker 4: will affect all this that this continues. So one reason
Speaker 4: another we're going to see recessions come and go but
Speaker 4: I can't get I can't say to you that this
Speaker 4: Trump stuff is It is totally unique in the sense
Speaker 4: it's the US president, but it is not unique. Downturns
Speaker 4: are not unique. World wars happen, a dot com bus happened,
Speaker 4: a banking collapse happens, are Lilliams. So stuff happens, and
Speaker 4: we're incredibly intelligent as we look back at it. But
Speaker 4: the fundamental thing I keep pointing to is where the
Speaker 4: demand for property and goods and services comes from is
Speaker 4: human beings. And this year the world is going to
Speaker 4: grow by approximately ninety three million people. Now that's three
Speaker 4: in a bit times the population of Australia are going
Speaker 4: to be born this year. The world population is exploding.
Speaker 4: If readers are really interested, you to think called world
Speaker 4: O meter, World oh meter, and just just it actually
Speaker 4: shows you births and deaths.
Speaker 3: By the second.
Speaker 4: It is quite alarming clock actually, but it shows you
Speaker 4: basically that this year, and it's looked plus or artist,
Speaker 4: it's pretty much right, ninety plus million new people on
Speaker 4: the planet. Now, that becomes a billion new people on
Speaker 4: the planet in ten years. And guess what, Michelle, these
Speaker 4: people eat. They want to buy a car they want electricity,
Speaker 4: they want to be warm in winter, they prefer to
Speaker 4: be cool in summer. And basically primary demand driver in
Speaker 4: the global economy is we little people like you and
Speaker 4: I running around and repeating myself, running around and buying
Speaker 4: our lafe of bread, and paying our rent, paying off
Speaker 4: a borgage, whatever we're doing, buying a car, selling a car,
Speaker 4: panicking and selling our shares.
Speaker 3: Please don't do that.
Speaker 4: The reality is is that we are the engine room
Speaker 4: of economic growth. And I simply sixty eight percent of
Speaker 4: the world's economic just comes from us wandering around the
Speaker 4: place doing stuff. And so look, I just can't get
Speaker 4: to if we go into a recession, we will recover
Speaker 4: from a recession, and bluntly, and I'm repeating myself again,
Speaker 4: the recession. You talk about nature's cleansing cycle. If we
Speaker 4: get too many predators, well, stuff gets eaten and the
Speaker 4: predator has got nothing to eat.
Speaker 3: They die out. Now it's awful. Okay, nature can be
Speaker 3: really tough. It can be really really tough on over
Speaker 3: numbers of predators, whatever it may be.
Speaker 4: But the reality is is that a recession is a
Speaker 4: bit of an economic cleansing cycle.
Speaker 3: As the wonderful Warren Buffett says, which I do adore.
Speaker 4: You know, the only time you find out when people
Speaker 4: are swimming naked is when the tide goes out, and
Speaker 4: you know, when things boom, we get a lot of
Speaker 4: stuff going on that really is you know you're going
Speaker 4: to get caught out sooner or later, and as the
Speaker 4: tide goes out. So what Buffett is saying, the tide
Speaker 4: going out is like recession. When the recession comes, a
Speaker 4: lot of poor practices get on earthed and bluntly it is.
Speaker 4: It is one of the economy's cleansing parts of the cycle.
Speaker 4: Easy for me to say, if I lose my job
Speaker 4: in that cycle, it's really painful. Right, there is pain
Speaker 4: if we go into one. We are going to recover
Speaker 4: because the world population and Australia's population, regardless of this
Speaker 4: current political debate, is going to great growth in people
Speaker 4: means growth in demark So basically, do what you can
Speaker 4: to hang in there. If you need to, you cancel
Speaker 4: the fox door subscription. If you need to, you sell
Speaker 4: the car if you need to. Bluntly, I've had a
Speaker 4: few people, you know, move out of the homes they
Speaker 4: are and they're not that kid on living with mum
Speaker 4: and dad, or maybe they can't. It's like me, my
Speaker 4: parents lived in the country, very hard to live with
Speaker 4: Mamma dad. But people are taking some pretty strong action
Speaker 4: to save those primary assets. So it is really I
Speaker 4: think it is about not panicking and selling any shares and.
Speaker 3: Super in a bit of a downturn. You know, you
Speaker 3: always end up regretting that.
Speaker 2: Now you've kind of covered this before, but I was
Speaker 2: enjoying our conversation that I forgot to ask the obvious,
Speaker 2: which is the topic of this episode, recession proof investing.
Speaker 2: So for a bonus round, can you give our listeners
Speaker 2: three tips on recession proofing their shares or property portfolio?
Speaker 4: Right now, I think it's really more a broader comment.
Speaker 4: I mean, the obvious recession proof strategy is that we
Speaker 4: do know that cash, for example, it is always over
Speaker 4: any ten year period, the worst performing asset class will
Speaker 4: ever hold no protection against inflation. You pay tax on
Speaker 4: your interest, and let's say at the moment, even if
Speaker 4: you're getting five some of the turn to positive strip
Speaker 4: out about three percent inflation. Let's say only five percent
Speaker 4: your pain forty percent.
Speaker 3: Tax there as two, so you're five percent.
Speaker 4: Three percent inflation is about three, so at best, just
Speaker 4: standing still even with relatively high rates of return to
Speaker 4: deposit and rates. By the way, I support the other experts,
Speaker 4: rates will go down. And by the way, one of
Speaker 4: the joys if you caught that of a recession is
Speaker 4: obviously rates go down strongly during a recession because that's
Speaker 4: how the reserve bank allows us to helps us to
Speaker 4: recover again. So you know, rates have certainly got a
Speaker 4: drop if things slowed down. So basically the wonderful thing
Speaker 4: would be is that as you go into a recession,
Speaker 4: you one hundred percent in cash earning five percent. Recession
Speaker 4: comes along, both property and chair values will tend to fall,
Speaker 4: and of course you buy in at the bottom. Stupid strategy.
Speaker 4: So my feeling is in terms of being recession proof.
Speaker 4: It is actually also where you are in a boom
Speaker 4: to be quite blunt for shell and where we are
Speaker 4: is I particularly.
Speaker 3: It's it's easy.
Speaker 4: At my age when Vicki and myself had three kids,
Speaker 4: we had absolutely doff all savings. Now we were struggling
Speaker 4: to pay our mortgage each month, let alone savings. So
Speaker 4: the perfect world doesn't really exist, but obviously a recept
Speaker 4: we're now talking about investing I do not change my
Speaker 4: asset allocation across cash, shares and property in booms or busts.
Speaker 4: So my recession proof strategy for me is maintaining my
Speaker 4: diversified portfolio. If I got a bit over excited during
Speaker 4: a boom, I got a bit too excited and found
Speaker 4: most of my super and shares. We shouldn't be doing
Speaker 4: that in a boom or bus to be quite plucked.
Speaker 4: So for me, it's about maintaining sensible mix of assets.
Speaker 4: And if you're younger, I would be sticking with my
Speaker 4: growth strategy bluntly. At my age seventy this year, I'm
Speaker 4: only working a few days a week, mainly for Human
Speaker 4: Shop at a couple of boards I chair. But basically
Speaker 4: for me at the moment is that I am earning
Speaker 4: less than we spend, and so for me to have
Speaker 4: say a couple of years of our spending money put
Speaker 4: aside in either cash and superannuation or outside superannuations makes
Speaker 4: a lot of sense because as my earnings decline, I
Speaker 4: need to rely on assets, and what I don't want
Speaker 4: to be doing is I don't want to be forced
Speaker 4: to sell assets in a downturn. So a recession procession
Speaker 4: proof strategy for a younger person is bluntly to maintain
Speaker 4: the sort of superannuation so on you should be in,
Speaker 4: which is really great strategy. You have made thirty or
Speaker 4: forty years to go visit smart to have a little
Speaker 4: bit of a pot of savings if you can't look obviously,
Speaker 4: it's smart if you can, because what you don't want
Speaker 4: to be forced to do is the last thing you
Speaker 4: need is and that's why Vick and myself, you know,
Speaker 4: cancel whatever you need to cancel, Fox or whatever, get
Speaker 4: rid of that stuff on a recession if you're looking
Speaker 4: at losing your.
Speaker 3: Job or whatever.
Speaker 4: Cars may need to go, whatever. But basically it's maintaining
Speaker 4: the primary asset if you own a home, and it's
Speaker 4: doing whatever you need to do to maintain they have.
Speaker 4: So for me, really, I think in a way i'd
Speaker 4: probably throughout my life being prepared for recession simply by
Speaker 4: holding a mix of assets and not punting on one
Speaker 4: asset with lots of debt. Well said Paul.
Speaker 2: Always a pleasure to have you on the podcas Thanks
Speaker 2: for your time, my.
Speaker 4: Pleasure, and I'll look forward to see what happens to
Speaker 4: your stuper innuation in the ear of Donald Trump, Michelle,
Speaker 4: and we could well get a really decent downturn and
Speaker 4: at some point in the next thirty years history says,
Speaker 4: we guarantee to get another monster down to it.
Speaker 3: We will recover and I've got no idea what's going
Speaker 3: to cause it.
Speaker 2: Yes, I think what I got from this from our
Speaker 2: conversation is keep calm and carry on.
Speaker 3: Yeah, you need that British too shirt. Thanks Michelle.
Speaker 2: Before we go, If you enjoyed listening to the Friends
Speaker 2: with Money podcast or this episode, please share it with
Speaker 2: your friends and family. Do you have a finance question
Speaker 2: that you'd like Paul to cover in his Ask Paul column?
Speaker 2: Drop us a line on podcast at moneymag dot com
Speaker 2: dot au. Until next I'm Michelle Baltazar. Bye for now.
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