We're entering what is traditionally the best time of the year for the stock market – November, December and January have historically produced the highest returns and a Christmas rally usually helps end the year on a high note.
For the past 25 years the average monthly gain on the All Ordinaries Index has been over 2.2 per cent, compared to well under 0.5 per cent for almost every other month.
But 2011 could well be different, and investors who think there is value in the market right now may be better advised to wait until the uncertainties surrounding the European crisis are a little clearer. (More from David Koch: Super Slump)
Right now, a recession in the Europe and UK looks almost certain – it's just a question of how bad it will be. For those in Spain and Greece, where unemployment is already around 20 per cent – it feels like a severe recession already.
But the ripple-out effect from a Europe-wide recession could well knock the US back into negative territory, and the combination of Euro-US recession will be felt in Australia through reduced demand from Asia – and from China in particular.
While it is true that China is far less reliant on Europe and the US than it used to be, the two regions still account for 36 per cent of China's exports. And if such a large part of China's economy takes a hard knock, its easy to see how it could impact on Australia. (More from David Koch: Financial Meltdown)
So do you want the good news or the bad news?
The good news is that a severe blow to China and, by association, Australia, will most likely see interest rates reduced – possibly quite sharply – to attempt to keep the economy ticking over and consumer confidence up.
If you manage to hold on to your job through a period like this, you'll see disposable income increase and life won't feel too bad - a bit like the GFC in 2008 for many Australians.
The Aussie dollar, too, will most likely get knocked even further below parity and that will be good news for our exporters, and our tourism and education industries, and we will probably see the price of fuel fall as well, since global demand for oil falls when global economic growth slows down.
But a sliding global economy will inevitably come with a price, and the most painful of those will be higher unemployment. Amid such an environment, consumer spending is likely to be subdued and Aussie companies, large and small, will look to make cost savings. It is shaping up to be an uncomfortable time. (More from David Koch: Cash In On The Volatile Market)
So how do you best prepare for another economic slowdown?
The first and most important rule is to pay down high interest debts immediately. Credit cards should be the first to go.
Second, start regular savings. Ideally you want the equivalent of a few months' salary in the bank as an emergency fund to fall back on if your hours are reduced or you lose your job.
It's not a bad idea to pay this into the mortgage instead of a savings account so long as you have an easy drawdown facility, because the effective return on your capital is so much better than any savings account can offer.
Draw up a monthly budget and identify where you can make cost savings and start putting that extra cash aside. Start with your essential outgoings such as the rent or mortgage, utility bills and food, then work backwards. If you're going to be a true master of your finances you need to budget for everything from your hour on the pokies to family birthday presents, Christmas, holidays, clothes – even that morning cup of coffee. Cutting that out could easily save you $100 a month. (More From Yahoo!7 Finance: "Top Ways You're Getting Ripped Off")
Finally, ask your Superannuation managers if they have a cash option within the fund. It may make sense to take some profits and put some of your money into a safe haven rather than leave it exposed to the equity market. This is particularly true if you are approaching retirement and cannot afford to lose any more of your savings.
Of course, the way the markets have been behaving lately, there is a chance you could miss out on an enormous "relief rally", where share markets surge because they believe the European crisis is over. There is also the chance the things get a good deal worse from here. With the future of your investments so finely balanced, are you prepared to gamble on the fractious Europeans doing a deal to avoid recession whilst simultaneously dealing with their enormous sovereign debts? It's a nightmare that will have economists debating for decades to come.
But until the "unknowns" become clearer, it's better to take cover than leave yourself exposed.
When the future is really looking better, get back into the market - a little at a time - and identify first those high-yielding shares that can pay a dividend to guard you against volatility in their capital value. Then hope the world returns to normal.
From Europe right now, normal seems a long way off.
