Speaking to Nest Egg, Alan Greenstein, the CEO of mortgage-secured marketplace lender Zagga, said investors may feel a heightened “sense of emergency” at this time of year.
“The first thing they need to do is not panic and not do something stupid and not make impulsive decisions they may regret later just because they've got some money lying around and they feel they need to have a home for it,” Mr Greenstein said.
As with any time of year, he said investors need to “objectively, reasonably, rationally, carefully and considerately determine what their investment strategy needs to be” and make decisions accordingly.
He said an SMSF shifting money out of the bank and into a different investment won’t make much difference to a tax return at this time of year, but can set the SMSF up for a different experience in the next financial year.
“People need to have a balanced portfolio whether that is budget time or not budget time. Budget time just makes it more acute and means they need to have a look at where they're sitting,” Mr Greenstein said.
Rate rises and tighter banks on the horizon
Looking beyond the EOFY, Mr Greenstein said investors can expect a shifted landscape in the coming financial year.
“You can read in the press every day that the royal commission has had an impact far greater than any of us would've expected,” he said.
“The consequence of that is that banks are going to become ever tougher, the consequence of that is that property investment may soften a little bit, the consequence as well is that there will be a lot of people who hold mortgages who may be forced to sell their properties a bit cheaper than they otherwise would have.”
At the same time, for every seller there is a buyer, Mr Greenstein added. While some sellers will sell for less and some buyers will get a bargain, “at the end of the day this will equalise”.
As the CEO of a marketplace lender, he said the softened market won’t take away from the “fundamental economics of being a lender”.
Provided the valuations and credit are appropriate, the investor understands the conditions and the investor’s portfolio is suitably diversified, he argued marketplace lending remains a “credible alternative”.
“Markets are already pricing economic downturn into their prices, they're pricing strain on banks into their prices, interest rate changes into their prices, which means markets are coming down a little bit,” Mr Greenstein said.
“Alternatives tend to work on a different psychology on slightly different fundamentals and even if rates come down by 1 per cent, there's still going to be a lot of room.”
But don’t go from ‘the sublime to the ridiculous’
“People need to understand not to be greedy and to understand the higher the return, the higher the risk adjust has to be and the lower the return, the lower the risk,” he said.
Money in the bank is low risk, Mr Greenstein said, urging investors to avoid going from “the sublime to the ridiculous”.
“[Investors] shouldn't go from earning 2.2 per cent a year to 20 per cent a year and necessarily think they're going to be safe and think they're averaging out at 10 per cent,” he said.
“They need to look at the investment cycles and categories that are there and make the right decision based on that. There are going to be market movements but the savvy investor can account for and overcome those without necessarily taking on any additional risk.”