The one principle that puts everything into perspective
With the volatility seen in share markets this year, along with continued uncertainty in property prices, it could be easy to let fear influence your decisions when it comes to money and investing in 2020. While each recession has its unique catalysts, this year being no different from COVID-19, economics and markets do eventually recover. With that in mind, it’s important to remember one key principle when it comes to your investment to keep everything in perspective: time horizons.
Think long-term, despite short-term bubbles, One of the key things the world’s best investors tell people is to invest with long time horizons. Property investing is no different. Sure, there are situations such as the rapid growth in property prices across Sydney and Melbourne in recent years. Still, it’s important not to forget the long-term trajectory of property prices so you can set your expectations accordingly.
Historical property values
Capital growth is one of the key reasons you may invest in real estate, particularly if your investment properties are negatively geared. 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 percent. Further, 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 hasn’t quite doubled in the last ten years.
According to a 2016 study by CoreLogic, the combined cumulative change in capital city home values in the five years to 2016 was 23.2%. This growth rate suggests that, while the property will average an upwards trajectory, the old measure of property doubling every ten years may no longer apply, especially in Australia.
Volatility isn’t the time for rash decisions
Considering the ongoing economic uncertainty around the world, the slowing of recent years of rapid growth in property prices across Australia, and stagnant wage growth, you may be feeling fearful 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’re currently facing.
Thinking about where you’d like to be financially by the time the next recession rolls around can provide some perspective in helping you see the long game with your finances and investing. Further, think about how the next ten years might fit into your financial legacy for future generations.
There are many books out there about investing for the long-term that will put your financial goals into perspective. If you’re feeling lost about where to start, consider reading one of these books or speaking with a financial adviser.
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.