Issue #17 – 28th October 2020
1) Understands money (to get enough of it)
2) Innovative (developed problem solving skillset)
3) Control over their time and their life
Property prices are rising. What about interest rates?
We are seeing property prices around NZ rise, even though the world is in the grip of the COVID-19 pandemic and we have recently seen the biggest economic slump in NZ, ever – an interesting combination when you realise that property prices and economic activity are linked.
For residential property and direct shares, ever reducing interest rates are a key driver. More specifically for property, there are some demand pressures that still exist across the NZ property market.
The strong narrative around interest rates is that they will be lower for longer, possibly over 2021 and 2022 (although let’s face it, who can predict the future?).
What I know is that the US Federal Reserve adjusted its inflation policy settings, which means that inflation may run a bit hotter in the US over the next year or two. This can be an indicator of rising interest rates.
I wonder what will happen to property prices if interest rates rise?
My clients and I tend to be strategic about financial independence and avoid the more common transactional approach to money. Therefore, we are generally ambivalent about interest rate direction.
That is because, whilst reducing interest rates push asset prices up, it also makes the buy price more expensive. Rising interest rates may push prices down, making the buy price more favourable for us.
Fluctuating interest rates and market prices bring opportunity. We are not slaves to market and economic conditions. Our methodology and our focus on the economics of the investment asset protects us from risk and helps drive our investing results. We don’t rely on market prices and economic conditions for that.
With our strategic approach, we invest for the long run. Interest rates may decline further, demand for housing looks likely to continue for now, pushing property prices up. The RBNZ (Reserve Bank) is watching. You and I should also watch US inflation and US 10 year bond yields as a clue to interest rate direction.
Positioning for Success
As a property investor right now, I know that there is circa $50 billion being lined up by the Reserve Bank of New Zealand to be passed on to mainstream banks, so that they can further reduce interest rates and stimulate the economy.
What is weird about this is the fact that this appears to target property rather than the productive sector of the economy, which is small business. I just don’t get it!
What we will have is perpetuation of the madness in terms of ongoing rising property prices, making it yet more difficult for first home buyers.
Although I am usually disinterested in quick, short term gains, because the long game is more strategic and more profitable, nonetheless, there is a real possibility of some gains to be made in the property market in certain areas in New Zealand over the next few months.
The point I am getting to here is that, as good as this sounds, if that is your only strategy, then what are you going to do when interest rates rise?
This is a good example of a transactional approach to investing and of course, it revolves around residential property.
But what about the share market?
Well, as you know, we do not play the share market at WISEplanning, we invest in the underlying business.
That builds in a layer of reliability, whilst protecting our capital and providing us with growth over time.
For those of us that are in business, the current environment is as good as any because real success in business should have little to do with prevailing economic conditions and much more to do with how well we align our business behaviour with our business goals and objectives.
Success in small business (SME’s) revolves around the economics of small business, which of course is the winning team, strong use of process and procedures, leverage of technology and the development of intellectual property.
Combine direct shares, residential property and your own business into one package and we now have The SUSTAINABLE Wealth Model. Right there is a reliable way to build as much money as you will need in the future.
If this is straight forward for you, then what are you waiting for? Go for it.
If this is not straight forward for you, get in touch and we will make it easy.
Align your behaviour with your goals
We have talked in the past about your financial wealth thermostat. What is that?
Well, as you may know, it is those limitations, barriers and obstacles to your ultimate financial independence.
We refer to them at WISEplanning as Progress Barriers (the things that hold you back), which are created by your Financial Failure Friends (your habits and attitudes that create those barriers in the first place).
When you better manage or eliminate those Progress Barriers and Financial Failure Friends, you reset your wealth thermostat.
In simple terms, you set yourself up to be able to make much more money. Would you like to know more about that right now?
Price is what you pay; value is what you get
Which is best, residential property, direct shares or my own business?
Why is it a dumb question? Because the answer is all of the above and not one or the other. The combination of all three is the key to all the money that you will ever need.
How do I get started?
Don’t overlook this …
- As a property investor, you should be aware of the healthy homes legislation, which is coming into force soon. It is not complicated but may require some work if any of your properties are not up to date, as per the code. Click here to find out more;
Keep it smart …
- Don’t worry about whether it is a good time or a bad time to invest in the so-called share market. Remember, we are investing in businesses and opportunities are always available, just sometimes more plentiful than others.
- Avoid trying to time the markets or second-guess economic direction – that will not work long-term.
- Focus on the business (not the stock) and if you do not know what to do, just let us know and we can make it easy for you.
Investing is something that few ever succeed at and yet once we understand it, we realise it is relatively straight forward – especially the way we do it at WISEplanning (thanks to Warren Buffett and Charlie Munger).
Whether it is residential property, direct shares or your own business, the combination of the financials (carefully selected numbers and financial ratios) and the economics of each asset will provide you with reliable investing success.
“HIM: money does not buy happiness
HER: pass it over here, I want to be sad!”