Remember how clever we all felt during the bull market? It was buy, buy, profit, profit. Today, the sense is more of bye-bye profit.
And according to the latest Westpac-Melbourne Institute index, there are other concerns depressing consumer sentiment to levels not seen since last August before the Reserve Bank began cutting interest rates.
So let's look at the factors that are making us nervous - and just what you can do about them.
Portfolio pain
The memory of the more than 50 per cent plunge in equity markets is raw - and we're still almost 40 per cent below the high of late 2007. A survey by our sister publication, Smart Investor magazine, found a full third of baby-boomer readers have had to delay their retirement as a result.
Continuing instability overseas is not helping. Europe is not yet out of the woods, the US recovery is looking less strong and Chinese growth - vital for our resources-rich pocket of the world - is slowing.
Many have reacted to recent ructions by selling down some stocks (19 per cent of Smart Investor respondents) selling out of others (11 per cent) and, for a few, selling everything (2 per cent).
And this fits with recent talk from the likes of former Future Fund head David Murray, Super System Review chair Jeremy Cooper and former Treasury boss Ken Henry that our super funds are overexposed to equities.
There are two key methods for dealing with an unstable investment environment - diversification and dividends.
You need to spread your wealth - in both super and money held outside it - across a range of different assets, keeping your allocation to equities and property age-appropriate. You should reduce these more risky growth assets as you get older.
On dividends, we have one of the highest-yielding markets in the world - more than 5 per cent - and favourable tax treatment pushes this up further. So even if share prices simply drift sideways, buy the right stocks and you can get decent returns.
Interest anxiety
The unilateral move by the big banks in February to raise interest rates when the RBA held them triggered an instant deterioration in how we felt. And it was a scary development.
But you don't have to wear it. Remember, the best variable rates are more than 1 per cent below the banks' advertised rates - you can get below 6.5 per cent - so the savings from switching are huge. Ask for a matching discount from your existing lender first.
Before you are spooked into fixing, be aware that institutions are clawing back there, too. In March, rates rose on more than 200 fixed loans, despite the Reserve abstaining, with the average two- and three-year fixed rate rising 20 basis points. If you do need repayment certainty, get in quick and hedge your interest-rate bets by only fixing half.
You can find the best deals on mozo.com.au.
For savers and retirees, the possibility of further official rate reductions - on soft housing, spending and confidence data - will also be causing unease. There have even been calls for a double cut to ease consumer pain.
The RBA is bound to be swayed by the inflation reading that's due on April 24 - but, for you, forewarned is forearmed.
Fears about job security
The high Australian dollar and our shopping strike are putting industries such as retail, tourism and manufacturing under pressure. Last week there was even a glitch in what is supposed to be powering our economy - resources - with a mine closure by BHP jeopardising 1400 jobs. But, so far at least, it's more expectation than reality.
Economists were actually shocked by an unexpectedly good unemployment reading on Thursday - 44,000 new jobs were created against expectations of just 6000. There was particular growth in part-time positions - 28,000 - with women especially benefiting (female employment overall is at a record high). The unemployment rate appears to be stable at 5.2 per cent.
And there are even signs of a coming upswing in employment. ANZ job ads and the ABS job-vacancy series are both showing strength. But it can't hurt to make yourself indispensable anyway.
Talk of a tough budget
The government remains hell-bent on returning the budget to surplus by 2012/13 as it has staked its political survival on it.
Naturally, the expectation of even more hardship to come is doing nothing to improve our money mood. Unfortunately, there's little we can do to head off any punitive changes until we at least know about them.
Wayne Swan, on this one, we're looking at you.
Nicole Pedersen-McKinnon is also the editor of Smart Investor magazine. Follow her on Twitter @NicolePedMcK.
Frequently Asked Questions about this Article…
Why is Australian consumer sentiment so low right now and what does that mean for my investments?
The Westpac–Melbourne Institute index shows consumer sentiment has fallen to levels not seen since last August, driven by worries about equity market losses, overseas instability (Europe, the US and slowing Chinese growth) and local concerns like interest rates and a tough budget. For investors, low sentiment can mean more volatility and caution in markets, so it's a signal to review risk exposure and stick to a plan rather than react emotionally to headlines.
How big were recent equity market losses and how have they affected retirees?
Equity markets plunged more than 50% from the prior peak and remain almost 40% below the late-2007 high. That fall has forced many investors—about one third of baby-boomer readers of Smart Investor—to delay retirement, underscoring the impact large market downturns can have on retirement timing and income plans.
What practical steps can everyday investors take to protect a portfolio in an unstable market?
The article highlights two key methods: diversification and focusing on dividends. Spread wealth across different asset classes (shares, property, cash, bonds) and keep equity/property allocations age-appropriate—reducing risky growth assets as you get older. Also consider dividend-paying stocks to generate income even if share prices drift sideways.
Are Australian shares a good source of dividend income for investors?
Yes—Australia is described as one of the highest-yielding markets in the world, with dividend yields of more than 5% and favourable tax treatment that can boost returns. Buying the right dividend-paying stocks can help deliver decent returns even during periods of limited capital growth.
What should I do about mortgage interest rate worries after banks raised rates when the RBA held?
Don’t panic—shop around and negotiate. The article notes the best variable rates are more than 1% below banks’ advertised rates and you can find deals below 6.5% by switching or asking your lender for a matching discount. If you need certainty, be aware many fixed loans rose in March (two- and three-year fixes up about 20 basis points), so consider fixing only half your loan to hedge interest-rate risk.
How real is the job security risk mentioned in the article, and what should workers do?
Some industries (retail, tourism, manufacturing and parts of resources) are under pressure from a high Australian dollar and weak spending; the article cites a BHP mine closure that put about 1,400 jobs at risk. However, recent data surprised economists with 44,000 new jobs and a stable unemployment rate of 5.2%, plus signs of stronger job ads and vacancies. Still, it’s sensible to make yourself indispensable at work and keep skills up to date.
Should I expect official interest-rate cuts from the RBA and how could that affect savers and retirees?
The article says calls for rate cuts are circulating and the RBA’s decision will be influenced by the inflation reading due on April 24. Further official rate reductions would ease borrowing costs but could squeeze returns for savers and retirees, so stay informed about key data releases and consider their impact on both loans and deposit rates.
How might government plans to return the budget to surplus affect my finances and investments?
The government is aiming to return the budget to surplus by 2012/13, which creates expectations of tougher measures that could affect household finances. The article advises there’s little households can do until details are announced, so monitor policy announcements and be prepared to adjust budgets or investment plans once specifics are known.
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