Financial health check-up during a global pandemic
Professor Shaun Bond, from the UQ Business School, shares his thoughts on how to navigate some of the big financial decisions in this time of economic uncertainty.
Click the 'play' button to watch Professor Shaun Bond share his quick tips.
Click the 'play' button to watch Professor Shaun Bond share his quick tips
A lot of people are feeling overwhelmed at the moment with headlines filling the news about the COVID-19 global pandemic, plummeting stock markets and shortages in supermarkets.
This comes after devastating bushfires across many parts of Australia followed by (welcome) heavy rain and (less welcome) flooding. And it’s only March!
When I was appointed as the Frank Finn Professor of Finance in the UQ Business School in late 2019, I was excited to return to Brisbane and UQ after 24 years in the Northern Hemisphere. Little did I realise the extent of global disruption that was about to take place.
Click the 'play' button to watch Professor Shaun Bond share his quick tips
Beyond the significant human cost of the pandemic, for many people the speed and far reaching impact of this crisis has been alarming. Australia avoided the severe economic recession that occurred in many other countries during the global financial crisis. For many of us, this will be one of the most challenging set of economic conditions we have faced in our lifetime. Based on my experience of living though the financial crisis in the US, and as a researcher in the area of financial and real estate markets, I have provided some thoughts to help you navigate your family finances at this time.
Keep in mind that the situation is evolving and there are still a lot of unknowns about the path towards recovery. While we hope for a speedy resolution, we may need to plan for several months of disruptions to economic activity. At the time of writing, various government policies have been announced to support businesses and assist households. Additional measures are likely to be announced in the near future. In a situation like this, there is a strong need for governments at all levels to help backstop the economy until we are on a stronger economic footing. For many individuals and business owners, it may be necessary to draw on emergency funds to get though this time.
Of course, as with any financial discussion, your individual circumstances could be quite different, and it's always worthwhile seeking advice from an independent financial adviser or a trusted accountant.
Interest rates: now is the time to refinance
If there's one small upside from the financial market turmoil, it's that interest rates are at historic lows.
If you haven’t already done so, call your bank or go online to see if you can refinance to a lower interest rate (particularly if you are paying the bank’s ‘standard variable rate’). This can be an immediate way to save money every month.
Check whether your bank offers a mortgage offset account facility, as this is likely to offer a better rate of return than any savings account at the moment. If you need to access emergency funds, check to see if your loan has a redraw facility to let you draw on any additional payments you have made to the loan.
Some Australian banks have also announced relief packages to help manage the economic impact of the COVID-19 crisis.
As well as offering support for Australian small business, several banks have offered home loan customers affected by the coronavirus the chance to pause their loan repayments for a limited time. If you have been impacted by the crisis, it is important to reach out to your bank sooner rather than later to discuss options.
Buying a house: is now the time?
Data points to Australia as having some of the highest home prices in the world and, along with that, a high level of household mortgage debt. However, it is likely that activity in the market will come to a halt. Unfortunately, there's definitely potential for house prices to be caught up in a global recession, and turn down or stay flat for many years.
So, what if you are ready to buy, or are in the middle of searching for a home? Obviously pause and consider how your ability to pay back a mortgage might be impacted if the economy does fall into a severe recession. It will take several months for the impact of the crisis to become clearer. After considering your situation, if you are still comfortable with the financial commitment – and you are buying a home you can afford, in an area that you like, and you are planning to stay a long time –then you could find yourself in more of a buyers’ market than we have seen recently. However, be prepared to ignore the near-term volatility in prices!
Stocks: should I sell them all?
The All Ordinaries Index on the Australian Stock Exchange peaked in late February and, at the time of writing, has lost a significant amount of its value. In fact, some of the trading days in March have been among the worst on record. Ouch! But, if you can at all avoid it, don’t panic and rush to sell.
Unfortunately, some sectors of the economy, and the people who work in them, will be particularly hard hit over the next few months. There is no doubt that this will be a challenging time for many people and businesses. However, I am confident that over the medium term the stock market and broader economy will recover. Long-term investing requires consistency, so, if you can, keep investing and putting aside money for your retirement. If you are considering withdrawing money from your superannuation fund because of a change in circumstances, treat this as a last resort and seek advice about other options.
How you react to these market swings gives some indication of your risk preferences. So, do use this time to consider your long-term asset allocation (your mix of assets in your retirement account) to make sure you are comfortable with the way your retirement funds are invested going forward.
The information provided in this column is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this column, you should consider the appropriateness of the information for your own objectives, financial situation and needs.
About the author
Professor Shaun Bond is the Frank Finn Professor of Finance in the Department of Finance at UQ and teaches finance as part of the UQ MBA program. He has research interests in the areas of real estate finance and financial economics.
Prior to joining UQ's Finance Department, Professor Bond was the West Shell Professor of Real Estate in the Department of Finance at the University of Cincinnati, and the Director of the UC Real Estate Center. Prior to this, he held an appointment in the Department of Land Economy at the University of Cambridge. In addition, Professor Bond has been a visiting professor at the Pennsylvania State University and the George Washington University.
Professor Bond holds a PhD and a Master of Philosophy in Economics from the University of Cambridge, and a Bachelor of Economics (First Class Honours) from UQ.
About the author
Professor Shaun Bond is the Frank Finn Professor of Finance in the Department of Finance at UQ and teaches finance as part of the UQ MBA program. He has research interests in the areas of real estate finance and financial economics.
Prior to joining UQ's Finance Department, Professor Bond was the West Shell Professor of Real Estate in the Department of Finance at the University of Cincinnati, and the Director of the UC Real Estate Center. Prior to this, he held an appointment in the Department of Land Economy at the University of Cambridge. In addition, Professor Bond has been a visiting professor at the Pennsylvania State University and the George Washington University.
Professor Bond holds a PhD and a Master of Philosophy in Economics from the University of Cambridge, and a Bachelor of Economics (First Class Honours) from UQ.
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