Issue #13 – 2nd July 2020

3) Control over their time and their life

Are property prices about to decline?

 I know, we are becoming tired of the words Coronavirus and Covid-19 – we are over it … as they say. 

Covid-19 couldn’t care less about you or me.  Its mission is to find a host, not kill it and to live happily ever after.  The spread of Covid-19 has surprised most people. 

Anyway, how will it affect homeowners and property investors in New Zealand? 

Because people are losing their jobs and wage increases are now off the table for the foreseeable future, along with a slump in spending and other activity in New Zealand’s economy, this impacts on less demand for property which ultimately can see the expectations of property buyers to be cautious about how much they pay.

It has become a so called buyer’s market in some areas, although not everywhere.

As I have often said, “In New Zealand and other countries around the world, property is not an investment, it is a religion”.  What this means is that those who own property will cling to their ideals and their lifetime of conditioning around property as the holy grail, cannot go wrong type of investment that doesn’t lose ground, so to speak.  Also supporting prices we have record low interest rates not to mention the significant monetary and fiscal stimulus previously unthinkable in New Zealand, but now common and openly discussed. 

We do not have masses of people coming into New Zealand to support property prices and the activity of tourism plus an economic slump, the likes of which has not been seen for some time.  One would expect therefore, that this would have some impact on property prices.  The economists are suggesting somewhere around 8 to 15% decline, generally. 

Even then, property prices remain fundamentally expensive but that will not stop kiwi homeowners and property investors. 

Unless the economic shock is much greater (just what does it take?!), homeowners and property investors alike will probably cling to their ongoing leap of faith around property as the holy grail, unless of course they are caught out with insufficient income to fund their debt and / or their bank is demanding that they “bring their arrangements properly into line with banking policy (EEK!).”

Financial Planning

Positioning for Success

Do you know what is funny? 

Most people like to be better off and to get ahead. 

Some make a pretty good fist of it; however, most pay their personal economic development lip service. 

They are just not serious about it, it would appear – what do you think? 

Last month we gave you the opportunity for some quick fire thinking and easy adjustments that you could easily make to push things along – to improve your financial planning … Click here to quickly improve your financial plan …

Mindset Alignment

Align your behaviour with your goals

Your mindset is your behaviour around your financial planning and investing. 

It is all about the way you do things. 

It is also about what you are not doing that possibly you should be. 

It is about what you do as well. 

Some of the things you are doing around your financial planning from a personal economic development and investing are 100% correct. 

However, some of the things you are currently doing are not helping.

Cashflow management example

Although this is generalising somewhat, most people spend more than they need to.  That is on the ‘Do List.’

Most people do not track their expenditure so that they know what their spending patterns are (on the don’t list). 

A good cashflow thing to do: Save another $20 per week – just do it.  It is likely that in 12 months from now you will not notice the difference and yet you will have accumulated around $1,000.

Okay – is that on your ‘do list’ or your ‘don’t list’?

Investing

Price is what you pay; value is what you get

Want to know how to invest successfully? 

By the way, this is something that very few people ever succeed at. 

Sure, anyone can buy a rental property, invest in shares, get into business and all manner of other types of investing that goes on. 

The truth is that less than 10% of people ever have enough money.  Investing is not something that most people are good at. 

Here is how to win as an investor.

• Invest in capital assets. Click here to read all about it,
• Ignore the latest trends and investing fads – just do not go there. Instead …,
• Become a value/eco-investor,
• Understand that it is not where you invest but rather how you invest that makes all the difference.

What is value/eco-Investing? 

The first thing to know is that it is not complicated – believe me, it really is not difficult once you understand it.

The best place to start is to simply know that the trading price of property, direct shares, your own business, or anything that you invest in, is separate and different to its underlying intrinsic value.

TIP: Price and value are not the same thing. 

Price is what you pay, and value is what you get. 

The challenge for most is that they totally overlook the difference between price and value.  Most people make the mistake of chasing rising prices which works – until it does not.

Don’t worry about trying to work it all out just yet.  We can come back to that later, however, intrinsic value is what keeps us out of trouble. 

We can argue that the intrinsic value is the real or honest value of an asset.  Remember we are working with capital assets which have a cashflow and so there is a relationship between the amount of money invested and the cashflow that is generated by that investment. 

When trading prices rise too far above the level of cashflow generated by the investment, we know that it is becoming expensive. 

On the other hand, when trading prices drop much closer to the level of cash spinning out of the investment, then we know there is a good chance the asset is becoming cheap and worth considering. 

So, what you have learnt so far, is that by investing in capital assets and embracing the idea that the intrinsic value provides a solid guideline around what investments to buy and what to stay away from, you are getting closer to the point where you can invest without having to be too concerned about markets, governments, economic conditions and the like, but rather we can focus on the quality of the actual investment itself. 

That is the advantage that value/eco-Investors have.   

Next time around we will explore the secret to investing, developed by two billionaires and how you can learn from them to take aim at your next one million dollars.  I am not exaggerating or overstating what you are about to learn …

“Just because you can afford it, doesn’t mean you should buy it”