Are you prepared for a sharemarket crash?
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How can you prepare for a share market crash?
Hello and welcome to the Australian's Money Puzzle podcast. I'm James Kirby. Welcome aboard, everybody. Well, you might be happy with your super returns and possibly happy with your share market portfolio over the last financial year. That would depend, I imagine, very heavily on whether you had US shares, offshore shares that did so much better than our own shares. They did about 20% in the US. They did about 50% on emerging markets, and we did about 3%. So what I want to talk about today is not whether the share market can keep going, but are you ready? for a share market crash. That sounds like it's provocative. I don't mean it to be provocative per se. We're going to have a share market crash. There's one coming down the line.
There's always one coming down the line. I just can't tell you when it is, unfortunately. And I don't have to justify this in any way because the marks, if you like, of irrational exuberance are there for all to see, particularly in the US market. The US market rules the world and it rules our world more than it ever did before. And that was pretty obvious from the super returns this year, which were largely based on, directly based on the fact that big super funds had up to 50% on Wall Street. So what I want to talk about today is how to prepare and defend yourself and be able to sleep at night with the markets where they are and what you can do to feel better about this, basically, to have a bulwark on against this inevitable reversal, which will come sooner or later.
My guest today is financial advisor Liam Short of the Sonus Wealth Group. How are you, Liam? I'm fine, thanks, James. Glad to be here. Was I a bit over the top there?
No, look, it's 16 years since the GFC. I think, unfortunately, memories give up and people forget about it. And they do get over-exuberant and start chasing returns. And the amount of people I had looking to get into SpaceX just because they heard so much about it. but they didn't understand the risks they're taking on it. So you've got to be careful. You've got to understand that there are market cycles and we are looking especially top heavy on the US indices that are very much now concentrated in about 40 stocks.
Yes, and concentrated again within that on a bunch of AI stocks. And you mentioned SpaceX. I mean, people are rushing to put their money into a company that's trading on multiples of revenue. It isn't making a profit. And there are so many signs, as I say, that the market's overheated. So what we want to talk about is what you can do. So I want to cut straight through it. To me, Liam, the big one is the bucket strategy. And this is quite a strong theory. There's academic work on this for many years in the U.S. So I think, folks, the question is not whether you should put some money on the sidelines here. But how much and for how long? Is it a year? Is it two years? Can you talk to us about that, Liam?
Yeah, so it depends the stage in life you're in. But for my retiree clients, I want to have three to four years pension money in cash and fixed interest. And the whole idea behind that is if they know exactly where the money is going to come from for their minimum pensions or whatever their lifestyle is for the next two or three years, They're then more willing to let the rest of their portfolio go through the ups and downs and the cycles. The worst thing people can do is sort of be worried about where the money's going to come from. Then the market crashes and they feel they've got to sell at the very worst time. So by using the bookend strategy, you're avoiding that knee-jerk reaction.
which is very good, you know, in principle. I mean, who would actually argue with the idea? But three or four years is an awful lot. I mean, a lot of people wouldn't have much money left in their super or their share portfolio if they put three or four years aside.
Look, I'm basically talking about 20% of your portfolio in cash and fixed interest. So it's basically just making sure that you can meet those minimum requirements.
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