The one principle that puts everything into perspective
With volatility seen in share markets this year, along with continuing uncertainty in property prices, it would be easy to let fear influence your decision making when it comes to investing in 2020. While each recession has its own unique catalysts (this year being no different with COVID-19), economies and markets do eventually recover. With that in mind, it is important to remember one key principle when it comes to your investing to keep everything in perspective: time horizons.
Think long-term, despite short-term bubbles
One of the key things the best investors tell people is to invest with long time horizons; property investing is no different. There are unique situations which can expedite returns, such as the rapid growth in property prices Melbourne in recent years. Still, it is important not to forget the long-term trajectory of property prices so you can set your expectations realistically.
Historical property values
Capital growth is one of the main reasons people invest in real estate, particularly if they have negatively geared investment properties. The average annual growth rate for properties in capital cities that are well-located in terms of access to amenities, employment and infrastructure is 7 per cent. Furthermore, the generally accepted rule is that property prices will double every ten years. While this is a good reminder that property is a long game, the Australian property market has not quite doubled in the last ten years.
According to a 2016 study by CoreLogic, the combined cumulative increase in capital city home values in the five years to 2016 was 23.2%. This growth rate suggests that, while property will average an upwards trajectory, the old measure of property doubling every ten years may no longer apply, especially in Australia.
Volatility is not the time for rash decisions
Considering the ongoing economic conditions around the world, with the slowing of recent rapid growth in property prices across Australia and stagnant wage growth, you might be concerned about what the future holds for markets. History has shown that countries do recover from recessions, and Australia will be no different despite the challenges we are currently facing – there is strong evidence of this over the last 30 years.
Thinking about what financial situation you’d like to be in by the time the next recession comes can provide perspective in helping you see the long game with your finances and investing. Furthermore, think about how the next ten years might fit into your financial legacy.
There are many books and websites out there about investing for the long-term that will put your financial goals into perspective. If you are feeling lost about where to start, consider reading one of these books or speaking with a financial adviser – if you need to be connected with some trusted contacts in this space, please reach out to our team and we’ll be more than happy to assist in connecting you through our network..
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.