A long term view can be an investor's best asset
On the housing front, official figures confirm property values are cooling. But it can hardly be called a market collapse. Over the last three months, home values have dropped 3.4% nationally according to CoreLogic. That said, the first two years of the pandemic saw values leap ahead by 28.6%, so homeowners are still sitting on a tidy honeypot of equity.
In a year peppered by rate hikes, conditions are still tough for first homebuyers. But the flipside to higher mortgage rates is better returns on deposits, and would-be homeowners can use this to their advantage to build that much-needed deposit.
Rate hikes have seen homeowners batten down the hatches, and if the pinch of further rate rises would put your finances under real pressure, it may be worth thinking about fixing all or part of your home loan. By shopping around it is still possible to find 1-year fixed rates below 4%.
In the sharemarket, equities have put the pundits to the test over the past year, delivering more ups and downs than a re-run of Neighbours. However, the latest company reporting season has seen some strong results, which has helped the ASX 200 notch up quarterly gains of 6.37%.
Sure, we could still be in for a bumpy ride with equities, and there are plenty of challenges facing the business sector including rising rates, higher inflation and a tight labour market. But after 40 years in the money business I’ve seen the sharemarket cop plenty of hits, and it always goes on to recover.
Having a well-diversified quality portfolio is often your best defence against sharemarket falls, and of course, history tells us that investors who feel the most pain are generally those who lock in losses through panic selling.
No matter whether shares or property are your preferred investment, I can’t stress enough the value of sticking to your long term goals. As a guide, I was recently looking back through old research notes from 2007, which mentioned Sydney and Melbourne had median home values of $538,400 and $367,800 respectively. Fast forward 15 years, and those median values are now $1.07 million and $782,000 respectively.
Similarly, Vanguard’s latest share value chart shows that an investor who tipped $10,000 into a diverse bundle of Australian shares in 1992, and consistently reinvested any dividends, could have a portfolio worth $131,413 today.
It goes to show the value of a long term approach. Time in the market maximises the power of compounding returns, and that can be one of your best assets as an investor.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
According to CoreLogic, property values in Australia have cooled, with a national drop of 3.4% over the last three months. However, this follows a significant increase of 28.6% during the first two years of the pandemic, leaving homeowners with substantial equity.
Rate hikes have made conditions tough for first homebuyers, but they also offer an opportunity. Higher mortgage rates mean better returns on deposits, which can help would-be homeowners build the necessary deposit for a home.
If further rate rises could put your finances under pressure, it might be worth considering fixing all or part of your home loan. By shopping around, you can still find 1-year fixed rates below 4%.
The Australian sharemarket has experienced volatility, but the latest company reporting season has shown strong results, helping the ASX 200 achieve quarterly gains of 6.37%.
The business sector is currently facing challenges such as rising interest rates, higher inflation, and a tight labour market. Despite these challenges, the sharemarket has historically recovered from downturns.
A well-diversified quality portfolio is crucial as it provides a defense against sharemarket falls. History shows that investors who panic sell often lock in losses, while those with diversified portfolios tend to fare better.
In 2007, the median home values in Sydney and Melbourne were $538,400 and $367,800, respectively. Fast forward 15 years, and those values have increased to $1.07 million and $782,000, highlighting the benefits of long-term investment.
A long-term investment approach maximizes the power of compounding returns. For example, investing $10,000 in a diverse bundle of Australian shares in 1992 and reinvesting dividends could grow to a portfolio worth $131,413 today.
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