What do you want to be doing in 5 or 10 years time? How much do you need to live on comfortably in retirement? How much is it in today’s terms, how much will it be in tomorrow’s value, what assumptions have you made around the inflation rate and why? Have you ever thought about any of these questions in detail?
Living as we do in a society that is very much focused on the ‘now’ I find most people overestimate what they can achieve within a year and underestimate what they can achieve over 5 or 10. Yet with only approximately 3% of Australian’s retiring on over $60,000 per annum we definitely need to focus on the long term and develop a plan that will ensure we end up one of that few per cent that have security in our retirement and the lifestyle we want along the way.
To do so we need to understand the ‘market’ and what makes it tick so we can apply this to our plan allowing us to identify those areas that have the potential to perform in accordance with (or better than) our assumptions. While this is no easy task, what is so much harder though is trying to understand as an individual is why you do or don’t do any particular thing. What you do or don’t do is driven by your fears and beliefs in any given set of circumstances. We filter information through our experiences and our belief system causes us to respond to risk by making ‘justifications’ for our actions ranging from sound investment decisions to doing nothing or that which is just plainly wrong (I’m regularly horrified by investment decisions made by people that are devoid of logic or based on flawed assumptions and information).
In the 70s and 90s there were fundamental shifts in the economy that changed the affordability and performance of property. We’re going through another fundamental economic shift today. While the effects of this are not yet felt through the whole economy, it doesn’t mean that it’s not happening. What is important is how it will impact the property market over the next 5-15 years and what you can do about it today.
This year we will see plenty of people do very well out of property; why, because every year plenty of people do. We will also see plenty of people get it disastrously wrong; why, because every year people do. Property investing in this new era will not be the same as it has been but one thing remains unchanged, you. How you view property investment and how you act will determine the level of your success. Your actions are driven by what you believe. What you believe is based on what you know and, unfortunately it’s also based on what you don’t know.
If you want to maximise your returns in any investment, make sure you find out what you don’t know first and then go looking for answers!