As a group, Aussie consumers might be really dumb, if you accept information from the latest consumer sentiment survey. However, because you’re reading this story right now, I bet you’re not in the grey matter challenged category.
How do I know they’re dumb? Well, the stats tell me this!
Yesterday the Westpac/Melbourne Institute survey of consumer sentiment index fell by 4.8% to 98.8 in March, after rising by 4.3% to 103.8 points in February. The sentiment index is back below its long-term average of 101.3.
Consumers going negative I can cope with, even if the jobs market is unbelievably strong. Elections always spook consumers and businesses who aren’t sure how a new government might affect their bottom lines. Right now we have falling house prices and the media can’t get enough of scary headlines, so consumers being careful with their money makes perfect sense.
Now buried in the survey are a whole pile of questions and answers, and it shows up one of the dumbest numbers I’ve ever seen!
It seems 8.8% of respondents thought the ‘wisest’ place to put new savings was in ‘real estate’ – a record 46-year low! While the ‘wisest’ place for savings remains bank deposits, which 28.8% of respondents went for, while 26.3% preferred paying down debt.
The dumb money view above is that bank deposits are seen as the wise option, when it’s really only the safest option. However, if selecting the safest option is your wealth-building plan, you won’t end up with much wealth.
To prove my point, let’s imagine you were left $50,000 at age 21 by a loving great grandma and you opted for bank deposits that gave you an average return of 4%. By the time you’re 39, the money has doubled. When you’re 57 it’s $200,000. And if you retired at age 75 you’d have $400,000.
On the other hand, if you had a mixture of stocks and property averaging a return of 8% by the time you’re 57, your $50,000 would become $800,000, which compares to only $200,000 if you’d gone for the safe but not wise bank deposit option.
By age 72, you’re looking at living on $3.6 million compared to $400,000 and you retire three years earlier!
Ignoring tax, you, the one who went for property and stocks, could earn $180,000 a year off your $3.6 million, opting for a 5% safe return maybe in bank deposits!
The person who went for the safe but not wise bank deposit option gets $20,000 a year plus a pension but it demonstrates that the average Aussie is making a big mistake thinking the safe option is the wise option.
Recently I saw a story in the AFR that asked: what should you invest in with property prices falling? The irony is the headline should have been: “With property prices falling you should be investing in, wait for it, property!
The best time to buy CBA was in 2008 when we were all panicking about the GFC. That’s when it was $27 and you’d now be on a dividend-yield of 16%, and more if you add in franking!
One of the richest guys I know used to go to auctions in times like these and simply hang out to see if a real bargain showed up because times like these create crazy sellers.
All this shows the wisest place for most Aussies to put their money is into investing in getting money smart! The price of money ignorance is a very high price to pay. It comes back to haunt you when you’re retired, when it’s too late to do anything about it, except working well into your seventies.
I know financial planners have copped it in recent years and many have deserved a bollicking. But if you’re too busy to teach yourself about wise money plays, the wisest thing you might do is to find a trustworthy person to make sure you get the right wealth-building in place.
That sounds like smart, wise advice and it’s bound to make you feel safe and secure not only in retirement but in the years before you retire.
Imagine how much you could enjoy the here and now if you knew $3.6 million awaits you in retirement!
If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.