THIS week I have received a spate of emails from investors asking what effect the floods will have on their portfolios. Certainly, there will be some short term volatility as the market reacts to the news of the day, but this is no reason for sleepless nights.
The effect of the floods will be felt for years to come, and there will certainly be some short term impact on economic activity as businesses that have been damaged or destroyed try to get back on their feet.
But, recover they will, and once the mess is cleaned up, the building industry and industries that depend on it will be flat out as reconstruction and renovation occurs and people replace all the furniture and appliances that have been lost. One builder even went so far as to tell me that the floods could save the building industry as high interest rates and lack of funds had virtually crippled it.
This inevitable surge in economic activity can only be positive for the share market. In times like these it is important to remember the basic fundamentals.
These include diversification (not having all your eggs in the one basket) and only buying growth assets such as property and shares if you are prepared to hold them for the long term.
In summary, try to arrange your financial affairs so that you have a range of assets that includes residential property, local and international shares and term deposits and always keep enough cash available for unexpected expenses. This will ensure you are well placed to handle the next downturn whenever it comes.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org.
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