Your guide to survive the economic fallout

THE good news is that during all this financial turmoil the economy has barely budged.

The bad news is that's the good news.

Get worse it will.

The global economy has already turned down and we're not going to escape the repercussions. Until this year all the major economies were growing in tandem. Now they're all shrinking with the exception of China, which is just slowing down. The economic slowdown is going to be an agonisingly slow process but that at least leaves time to fence off your finances.

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Brokers go on about how every down day is a buying opportunity but in this market every up day has provided a selling opportunity.

Bargain hunting, especially of the marked-down banks and property trusts, has turned out in most cases to have been no such thing. In fact, the do-nothing option, if you already own some shares, becomes more appealing by the day. It's too late to sell and too soon to buy. Sitting tight has its merits in any case.

Jack Gray, the adjunct professor of finance at the University of Technology, Sydney, told a conference hosted by MLC Investment Management recently: "It's a truism that the more you churn the more you lose. Always question turnover."

True, if you don't have any shares or want to build up a portfolio, there's no doubt this is a better time to buy than it was a year ago. Or six months ago. Or last week.

But to protect yourself from the extremes of buying too soon - though every expert will tell you it's a mug's game trying to time the market - or missing the boat altogether, try dollar-cost averaging, which is buying small quantities of a stock with a fixed amount at regular intervals over time.

So at lower prices you pick up more stock and at higher prices less, which reduces the average you pay. It won't make you an instant millionaire but it's safe and, over time, builds wealth. One thing about a bear market is that it's not backward in telling you if you've bought a dud. If it tells you that, listen. The sooner you get out of a dud stock, no matter how much you lose, and reinvest the money into a good stock the better.

So what's a good stock?

Something that has consistent earnings and increases its dividend over time (without having to increase the payout ratio) is a good start. Consumer staple stocks (like Woolies) and essentials (health care) are also worth considering. And analysts still love BHP Billiton.

Source. Sydney Morning Herald

Your guide to survive the economic fallout

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So what's a good stock?

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