The timing of crises is hard to predict, but how to make yourself safer is simpler – start now. If you own, sell the big expensive house; if you rent, share to reduce costs. If you have superannuation or investments, shift them to the lowest risk option. Spend less and save more against future uncertainty.

The excerpts below are from a short article about keeping retirement funds safe which makes the point well; since we can’t guess the timing, the only way to ensure no loss is to move to safer low-return options early:

“Here’s a bit of bad news. The ubiquitous balanced growth superannuation fund, which is meant to deliver a no-frills retirement, only works about 65 per cent of the time. The rest of the time, diversification gets you nowhere.

It happened in the global financial crisis and it will happen again. To solve the problem, known as sequencing risk, State Street Global Advisers (SSGA) assembled an average balanced growth fund and ran it through thousands of 30-year scenarios to test if a balanced strategy was robust. It was an unhappy result. Nine out of 10 people would run out of money.

If diversification only works a portion of the time, the answer is to anticipate times when it won’t work and stage an exit to cash. Towards the end of last year the fund pulled the risk trigger and halved exposure to equities, but by the start of 2015 it would have been much better off 100 per cent in equities as the markets rallied strongly through January and Feburary.

There’s nothing mystical about this. If you don’t switch, you’re hoping. Our view is, we just don’t guess. Here’s the point: de-risking erodes return. But it doesn’t erode reutrn enough that it ruins your fund”. Source: Jeremy Chunn in the Australian Financial Review, 3 Nov 2015.

I was able to pick the global financial crisis because I’m a housing analyst, shifting my superannuation funds from balanced to bonds. It’s harder to pick the end of this very long boom. All the vulnerable parties, corporations and nations, are in public denial because anything else would erode their prices or increase their debt costs. Financial papers don’t provide meaningful analysis because their advertisers avoid long term investments to take profit from volatility.

Identifying the trigger issue is equally hard with so many candidates: take your pick from China’s demographic crunch, dodgy share market and “wealth management products”, Europe and Japan’s sovereign debt, capital flight from developing nations, shadow banking insolvencies, or rapid rises in the price of debt.

Don’t worry and don’t defer — just make yourself as safe as you can. Happy new year in 2016!