FINANCIAL planners have urged residents to remain calm despite the global credit crisis affecting world markets.
The warning against making brash financial decisions comes ahead of an expected interest rate cut by the Reserve Bank of Australia on Tuesday.
It follows months of sustained losses on the markets around the world, led by the United States where a controversial $US700 billion bailout package to buy up bad debts secured Congress approval late last week.
The slowdown was sparked by the US sub-prime mortgage crisis about a year ago after American financial institutions lent money to people who could not afford to pay their loans back, including some who had no job, assets or income.
This started a chain of events that fuelled worldwide market uncertainty and sparked the collapse of several overseas financial institutions.
Many banks no longer trust each other so the cost of borrowing money has increased significantly.
The Australian market has lost about 30 per cent or $500 billion in value since late last year, with heavy implications for superannuation funds and for investors.
The local market opened weaker on Monday amid ongoing concern over the ability of the US rescue package to unfreeze credit markets.
The benchmark S&P/ASX200 had fallen 167 points, or nearly 4 per cent, in the first four hours of trade.
Financial adviser Peter Hansen, of Infocus Securities Australia at Capalaba, said investors faced "bumps and rollercoasters" from time to time but the markets had always recovered from previous lows.
"The best thing that investors can do is hang onto their investments and wait for the markets to recover," said Mr Hansen, whose comments are general advice only.
"As dramatic and as painful as the current situation is, investors need to remember that crises are a regular feature of investment markets. They have occurred every six or seven years over the last 20 years."
Australian Shareholders Association Cleveland branch member Ted Sando, speaking as a private citizen, said investors needed to be patient to claw back their losses.
"But we're still in for a very rough ride. I don't believe we've hit the bottom yet," he said.
People who are approaching retirement age or have just finished work are likely to be more concerned than long-term investors about the market losses because the size of their superannuation funds are likely to have fallen.
Mr Hansen said he knew several workers who had decided to delay their retirement for 12 months because they wanted to accumulate more savings and give the share market some recovery time.
On the flipside, he said, now would not be a bad time to make prudent decisions about investing superannuation funds in the market when share prices were low.
"Fundamentally, we believe the Australian economy is in far better shape than that of America and the regulatory regime that governs our banking industry is far stronger," Mr Hansen said.
The assurances come as many local businesses seek to restrain their spending in the current climate.
Queensland restaurant and retailer groups have voiced concern over lower consumer confidence which has led to a decrease in sales over the past 12 months.
Redland firms have cut back on their advertising spending and businesses that import products from overseas have struggled because of the weaker Australian dollar.
Steve Parr, of Cleveland-based sports and fitness equipment manufacturer Star Sport, said he believed the higher import costs were having a 15 per cent impact on his business.
The Australian dollar fell to a two-year low of 75.73 US cents on Monday, amid global uncertainty and speculation over looming interest rate cuts.
Economists believe the Reserve Bank board will cut the 7 per cent cash rate by up to 0.5 per cent when it meets in Sydney on Tuesday, but uncertainty surrounds how much of the cut would be passed onto consumers because banks still face high borrowing costs.
HOW THE CRISIS UNFOLDED:
* US lenders were granting mortgages to many people who could not afford to pay them back including some with no job, income or assets.
* These sub-prime mortgages were bundled and traded as AAA-rated securities.
* Worldwide uncertainty led to the collapse of numerous financial institutions.
* Many banks no longer trust each other so borrowing is more expensive.
* $US700bn bailout package aims to buy up bad debt in a bid to unfreeze credit markets.
* Australian market has lost about 30 per cent or $500 billion in value since late last year.
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