Why are energy prices rising?
It’s the question that launched a thousand angry talkback calls and letters to the editor.
And the answers are as polarising as the beliefs are deeply held.
I have my view on energy and climate change, too, by the way. But that’s not what this article is about.
The reason energy prices are so high is because governments, for the best part of two decades, have kicked the energy policy can as far down the road as was humanly possible.
Unfortunately, we now know how far that was.
Turns out that in 2022, we reached the end of the cul-de-sac.
For today’s purposes, I don’t care if you’re a ‘this is coal, don’t be scared’ type of person, or someone who tattoos windfarms on their extremities.
The issue, for households across the country, is financial – we’re paying higher prices because we simply didn’t have an energy policy in place, early enough, to keep up with the changing demand for energy, the changing technology and the changing social preferences.
Energy companies didn’t invest in more coal-fired generation because the financial returns weren’t there. They didn’t invest in renewable generation because the lack of policy certainty made it too risky. And they didn’t invest in nuclear, because people didn’t want it and governments were scared of it.
And note, again, I’m not saying any of those options were good or bad. I have my views on each, but that’s secondary to the point I’m making, which is that the lack of government action has left us smack-bang in the middle of no-man’s-land.
Thanks a lot, pollies.
The same, by the way, is true of our federal Budget position.
(Yeah, I’m already in dangerous territory with energy policy. But in for a penny, in for a pound, so I might as well wade into this one, too!)
We have a structural budget deficit that I saw this morning estimated to be $40b – $50b per year.
That is, through the cycle – some years better and some years worse – we’re racking up around $45b of new debt because we’re living beyond our means.
Because?
Yep.
Because political parties are only too happy to shower us with goodies, in exchange for our votes, but don’t want to have the hard discussions about how we pay for it.
So they put it on the national credit card and leave it for the next bloke or woman to deal with.
Charming, huh?
Frankly – and I’m sorry if this offends your political ideology or self-interest – we can’t afford the Stage 3 tax cuts, especially the money that’ll be thrown at high-income earners.
We just can’t.
I have my views on whether they’re justified, ideologically, but that’s secondary. Particularly for this purpose.
We teach our kids to save their money.
We teach our young people to save before they spend (don’t get me started on Afterpay and credit cards!).
But our governments (yes, plural – they both took these tax cuts to the last election) seem to think the rules don’t apply to them.
Yes, it’s true that governments aren’t households. But the rules of money aren’t that flexible, either.
It is already irresponsible for governments to run budgets that are in structural deficit. It’s worse, to the point of negligence, to allow it to get… no, to actually deliberately make it — worse for wants that simply aren’t urgent or relieving true pain.
If and when we’ve returned the Budget to structural balance, we can and should have the conversation about who should get relief, tax-wise.
But in the meantime?
In the meantime, the Budget should be keeping every spare dollar it can find – otherwise we’re leaving our kids on the hook for our largesse.
And that’s just irresponsible.
And by the way, I’m not just having a rant about these things.
Oh, don’t get me wrong – it feels good to get that out!
But as is often the case, our criticisms of others can often be used to examine our own shortcomings.
How many of us criticise governments for making short-term decisions, but do the same things ourselves?
Are we really saving enough money for our retirements, or are we making excuses?
Mhmm.
And we complain about governments being too focused on the next couple of years.
But how many of us are looking at the current share market, or the prognostications of the next 6 – 12 months, economically, and missing what might be fantastic long term opportunities?
I would pay a large amount of money to go back to the COVID crash and invest more money.
I’d love to be taken back to the depths of the GFC and given a chance to put even more money to work in the stock market.
I bet you would, too.
But right now?
All many people can see is the storm clouds in front of us.
Oh, they’re real, alright.
As were the clouds that hung over us during those market crashes I just mentioned (and the many before before them).
But what we also know is two things:
First, the storms passed.
Second, because they brought broad market pessimism with them, they were a great time to buy.
You know when umbrellas are cheapest? When the sun is out.
You know when Christmas decorations are a bargain? On Boxing Day.
Now, I’m not saying shares can’t fall from here.
They can. Maybe by a lot.
Or maybe they don’t.
Maybe the half-price tinsel on Boxing Day is even cheaper a week later.
Or maybe it’s sold out.
One of the biggest thieves of long-term market returns isn’t paying a little more than you might have if you waited.
It’s missing out because you waited.
I can’t emphasise that enough.
So many people are so fixated on trying to guess the very lowest price, or the very best time that they miss out on ‘a bloody good price’ and ‘a very good time’.
The long term returns from the stock market – even on average – are astonishingly good.
By all means, try to do a little better, if you can.
But don’t kid yourself: you’re never going to ‘pick the bottom’, and you really shouldn’t try.
Because that’s entirely the wrong game to play.
The trick is to do the things that are likely to have a high probability of delivering really good long term results.
Not chase lotto tickets.
Because you don’t need to be a genius market-timer to do very well in investing,
History suggests – and it’s my strong conviction – that you just need to do the simple things that put the odds of success in your favour: you need to save diligently, invest regularly, diversify appropriately, and take a long term view.
We – and our governments – would be well served with that approach.
Fool on!
The post Don’t be like our governments. Invest. appeared first on The Motley Fool Australia.
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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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