A while ago Dr Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital Investors outlined 6 important lessons all investors should remember.
While he was talking about investment in general (and particularly about shares) his comments are clearly relevant to property.
Here’s what he said…
- The cycle lives on – times of gloom eventually give way to times of boom and vice versa.
- The power of compound interest – regular investing of small amounts in growth assets can compound to a big amount over the long term and make up for the volatility often caused by investment cycles.
- Starting point valuations matter a lot for subsequent returns – so buy low and sell high.
- Focus on investments providing decent and sustainable cash flows such as rents, dividends or interest – this is particularly important as investor gloom gives way to optimism.
- Invest for the long term as far as possible, but those with a short-term horizon should consider investment strategies targeting investment goals whether it be for cash flow or a retirement nest egg.
- Avoid the crowd because, at extremes, the crowd is invariably wrong.
In the aftermath of the GFC, the crowd piled into bank term deposits and sovereign bonds and this is turning out not to be the best place to be invested.