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Wednesday, February 02, 2011

Flood waters drain financial fun but long-term profits ahead

Flood waters drain financial fun but long-term profits ahead

Recently the media has put much attention on the January Queensland floods, and yes it looks like the doomsayers will get loads of coverage from the February Floods as well. Much of the news media coverage is bad news and they almost never tell you what companies will make money next year (however we are happy to give you some general investment advice).

The Queensland floods are a blip on the radar as far as investment markets go. Some people may panic and sell their shares in insurance companies such as Westpac, QBE or Suncorp, but wise people will know that long-term profits are ahead.

Right now, millions of people are being reminded of the importance of insuring their houses and their possessions (yes, people in rental houses should insure their household contents for flood, theft and fire; it only costs around 50 cents a day to protect your beds, TV’s, washing machines, fridges and clothes).

Millions more people are also being reminded of the importance of having appropriate insurance! Although the media doomsayers have a field day beating up major insurance companies for not providing more comprehensive cover (covering stormwater damage but not flood damage), the policy-holders also need to take some responsibility. Note to self and others: have accountability for your own choices. Good insurance is not cheap and cheap insurance is not good.

Share prices of some of the major insurers may have taken a short-term dip due to panic selling, but the insurance policy makers know that a major flood will come once every fifty years and they plan for it. They have huge stockpiles of money stored up to pay out claims, and this is what they do.

The insurance companies then sit back for the next fifty years and pull in millions of dollars in premiums and store them up again, waiting for the floods in 2065. Rest assured that the insurance companies will make massive profits going forward, just as they did in the 30 years after the Brisbane 1974 floods.

Two massively important tips for this month, so write them down and tell your friends; we cannot over-emphasise the importance of these two wealth creation tips.

1) Protect what you have before trying to get more. Insure your house contents, your car, your life, your income, your partner’s life and your partner’s income. If you cannot afford to insure it then you need to sell something you don’t need so that you can afford to protect what you really want.

2) Invest where you spend. If you insure your car with AAMI, your boat with Mariner, your bike with Shannons, your mum’s car with Australian Pensioner’s Insurance and have a mortgage with Suncorp then stay tuned. Suncorp owns all of the forementioned companies. You may do well to invest into a few shares in the company where you are sending so much money (parcels of shares start at just $500).

Remember that this is general advice for all readers and may not be appropriate for YOU in your unique circumstances. To receive tailored investment or insurance advice for your own situation, contact the author or contact your bank or your financial planner. Initial appointments are generally free. Investment fees and some insurance premiums may be tax deductible.

Jeremy Britton is an independent wealth coach, advising clients on shares, property and business. For more information refer to www.24HourWealthCoach.com

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