2020 has been a challenging year to say the least, and above all there have been a number of realities that have been exposed, as well as the hard lessons to go with them.
Earlier in the year when whole states, and countries of the world initiated lockdowns and people went into isolation, very few people foresaw the shockwave that would circle the globe, and how the impact reached every single person.
Whether we call the COVID-19 Pandemic a black swan event or not, it exposed how fragile individual lives and livings are, and just how vulnerable we are. It proved that nothing and no one was safe.
It’s not 1990 anymore.
For Australians, the impact was swift and devastating. Almost overnight the ‘Retail/trade’ sector was forced to idle down impacting 1,200,000 million workers – 9.9% of the economy by workers employed.
When the construction sector faced restrictions on the numbers of workers that could work on site at one time and the number of sites during any period of time, 1,160,000 workers were effected, impacting another 9.2% of the economy.
For a country where construction is the number 3 industry by employment, and the population (particularly in Melbourne) is addicted to coffee and café food, nearly 20% of the economy had been forced into life support nearly overnight.
Make no mistake everyone was effected, but the statistics just aren’t as eye-popping.
Let me get to the point.
The most common life path 30 years ago was: Do well as School, get a job and stay with a job, and work your way higher. 30 years ago, this worked ‘pretty well’, while many life forces were setup to ‘work’ with this philosophy.
Rising from the ashes
For those that can see it, every crisis brings new opportunities. Just as if inventors see a new problem as something to solve and benefit from, the Pandemic became the ultimate catalyst for the transformation of existing businesses, and the creation of new ones.
For those who had the freedom, ability and control to pivot, protect and diversify their business models, adoption was as swift as the isolation and lockdown measures.
But for nearly 2 million employees in the economy who were left with a fraction or none of their income while businesses went under, or released their workforces just to limp through to the other side of the lockdown, the ‘job’ which had historically formed the foundation of people’s lives as well as the means to support it … had failed.
As drastic change can act as a catalyst for good, success stories of entrepreneurial genius emerged, but for many, who found themselves on the economic sidelines, while the rest of the world continued to move on demanding the next mortgage payment, the ‘job’ had failed.
For 2 million people, even ‘recession proof’ and ‘ever-green’ industries like café’s, restaurants, construction, and trades … industries which are so heavily relied on out of need and 1st world lifestyle, we’re shown to be vulnerable.
Supporting industries – which supply and support the above also felt the pain.
With an immediate need for intervention, the government stepped in spending $102 Billion – effectively stepping in to stop the individual impacts from getting any worse.
Repaying that debt … everyone will pay.
Insecurity is the new Normal
If there is a lesson to take away here, it can be seen from those who survived, started and evolved from the upheaval that was lockdown.
Make no mistake there were those who got through the worst with almost no ‘significant’ (this is a matter of perspective) change to their lives, but for those who shrugged off or flourished through the worst of 2020, it had nothing to do with luck.
It was because they were protected. It was because they had prepared (No … they did not get a warning from the great powers) for such an event. It was because they were diversified. It was because they were not dependant on a single source for their income to support their way of life.
In the same way as automation can replace a human, disruptive technology can make an entire empire redundant overnight, anyone who gives a damn about themselves, their present and their future, must also have measures in place to protect their life and the means to support it.
Rather than relying on a pay check, being prepared to deal with insecurity means knowing your money can come from multiple sources.
If one method falters or even if one method fails, there are others ready to cover, or even handle the shortfalls.
Residential and Commercial property have the means to provide regular and stable cash flow, but further diversification is when commercial tenants are spread across industries.
Stocks also provide a high liquidity means of investment that can achieve both cash flow and capital growth. But diversification also means spreading the investment across various sectors, such as Consumer defensive, Consumer cyclical, technology, Financial, Industrials, etc … whatever your appetite and analysis determine. If one industry gets hit with a trade war, another may benefit. When a luxury industry gets shut down, defensive and essential options can be far better.
And finally if you can, have enough, and are getting ready for Armageddon, there is always gold … but remember this, gold is heavy.
Related: How much do you need to retire early
The world will and does go on
What we also have seen throughout all sort of significant events, whether it was the GFC, or COVID-19 … the world will and does go on.
Bills not only need to be paid, but currency has to circulate.
It can be easy to visualise an economy much the same as web with nodes. Every wallet and account connected via a network to every other, with some nodes being larger than the others, representing the immediate capital available.
For most nodes (being people) the nodes are small, enough to cover up to the next pay cycle, but for most not. Other larger nodes (Businesses) their size, and the amount they have in the bank will vary.
When it comes to people, I’m not a fan of banks – at present, banks aren’t working for you, and if you’re capable of anything more than nothing, you should be controlling your cash for yourself.
Here we get to the conundrum … the dilemma. Earning more than bank interest in a year isn’t hard. Sell a single t-shirt and you are better than a bank. Earn from a single trade or capital from a rising stock, and you are better than a bank, and you will officially have a second income.
That being said the side hustle does demand payment, in either energy or money. For many in 2020 when the need has never been greater, both can be and are often in rare supply.
When it comes to business (and people) what about not being able to collect income for 3, 6 … 12 months? Unless you have a diverse and robust business model with a way to operate remotely and digitally, The bank becomes a necessary evil.
The cash balance wont gain anything with any significance, but the bank is the war-chest for when things go badly wrong.
For businesses and entrepreneurs alike, the biggest lessons from 2020 are the absolute non-negotiable need for a business with good margins, and a hefty war chest.
This may be the only time I say it. Money in the bank can be a good thing. Smart investments nearly always have a positive return, but for now as doors are re-opening (in Australia) investing might not be on everyone’s mind.
Seeking inspiration from the black bear … now is the time to eat, eat, and eat some more. It is time to shore up any point of weakness, become more robust than you can ever think is needed, and to get as fat as possible, because there is no telling when the next commercial winter will arrive, or how long it will go for and in business where time is money …. Money in the war chest also is time.
Related: Why Cash Flow is King