Have you heard the story about the hot dog man and the recession?  Well, if you haven’t, it goes something along the following lines:

A humble hot dog man had a successful business selling quality hot dogs.  Every customer was served with a smile.  One day the man’s son came home from college and told his father a recession was coming so he better cut costs.  The hot dog man stopped advertising and garaged some of his hot dog carts.  Sales fell.  He retrenched staff and used cheap sausages and sales fell further.  Eventually he decided he would go back to doing what he was doing, that is selling good quality hot dogs with a smile … and sure enough…  sales went up.

You might be asking yourself what’s the point of the story?  The motto of the story isn’t whether or not Australia is heading for recession – this depends on whose point of view you wish to take and which newspaper you read after October’s Black Friday. 

The point is, the story is about how gloom and doom can become self fulfilling and how you have the power to create or avoid your own recession.  If you’ve been a sheep and docilely followed the pack by madly buying stock at the height of the stock market rise and now you’re desperately trying to recoup your losses by selling, just like the rest of the pack, then the sensationalist media predictions of loss and financial devastation are likely to come true for you. 

To use the delicate vernacular of Prime Minister Rudd, Australia is heading for an economic slowdown and there will be some unfortunate side effects such as job losses.   But if you hang in there and ride out the economic downturn, you may see some excellent returns down the track.  History has repeatedly shown that after every bust …. eventually there is a boom … but we just don’t know when that will happen. 

During periods of bust, people take their money out of the stock market and company stock prices are driven down for reasons that are not always logical.  Now is not the time to cash in your chips and park all your spare cash under the mattress.  For those with some financial common sense, a downturn provides some great opportunities because everything goes on sale.    If you have a bit of spare cash lying around, now might be a good time to consider discussing your  investment options with your licensed financial planner.

The stock market isn’t the only area where there also may be an opportunity.  In a lead up to an economic downturn, the Reserve Bank will often reduce interest rates in an effort to stimulate the economy and stop it from falling into a recession and we’ve seen that recently with the generous interest rate cut granted by the Reserve Bank in a swift response to the world financial crisis. 

Cheaper interest rates mean cheaper debts to companies and lower mortgage rates for families.  With stagnating house prices and predictions of further interest rate cuts, now may also be a time when we see the property market change direction.    

But remember, while you have the power to create or avoid your own recession and control your financial destiny, also make sure you have a chat to a qualified financial planner who will help steer you on the right financial path.  So call us on 1300 766 323.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

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