Why investors shouldn’t fear the ‘R’ word

Talk of recession is in the air. My educated guess is that a recession is unlikely to occur in the year ahead. But even if a downturn does occur – it doesn’t really matter.
First, let me give three quick reasons why I think a recession is unlikely:
Our population is growing at a strong 1.6% per year, which means that per-capita activity would need to fall by more than 1.6% for the overall economy to go backwards

The Australian dollar fell 7.2% compared to the US dollar in the year to August, which has made our exports more competitive

National property prices rose in August for the first time in 23 months, which indicates that activity is picking up in the important housing sector

Australia is well-placed for long-term growth
No one wants a recession. However, if one does occur, it doesn’t really matter. Let me explain why.

First, there are only three guarantees in life – death, taxes and that another recession is always going to occur sooner or later.

Second, smart property investors know that markets move up and down, which is why they buy and hold for the long term.

Third, Australia has grown strongly over the long term, despite a surprisingly high number of negative GDP results. Since ABS records began in 1959, Australia has posted 36 negative quarters out of 239 – about 1 in 7. But the positive has far outweighed the negative, which is why growth has averaged 0.8% per quarter over those 60 years.

Fourth, Australia is well placed for another 60 years of consistent, long-term growth due to its flexible economy, strong institutions and stable society.

Block out the noise and focus on the fundamentals

The moral to the story is this: investors who buy quality assets and hold them over the long term will prosper, even though recessions will occur from time to time.

That’s why it’s important to block out the noise from the media and focus on sustainable wealth creation, whether it’s property, shares, bonds or all over the above.

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