We know the Reserve Bank is determined to lower unemployment and increasing wages growth and inflation.
It’s attempting to do this by lowering interest rates and is even talking about other measures such as quantitative easing.
But what if this doesn’t work?
What if the only effect of lowering interest rates is pushing up property values, yet the economy doesn’t pick up?
That’s the subject of today’s chat with Dr. Andrew Wilson. We discuss some really interesting things about the economy, what’s happening overseas, and what it means for you, me, our wealth, for interest rates, and for our property markets.
But first, I’m going to share five property investment lessons you can learn from farmers and a mindset moment with you.
5 Lessons property investors can learn from farmers
- Look at your salary or wages the way a farmer looks at his seeds.
Think about how and where you can ‘plant’ that income to create a return on your investment, instead of focusing on consumption and spending.
- Be patient and look after your investment the way a farmer tends his crops.
As a property investor, you need to understand that long-term market cycles (as with the seasons) and time in the market will ultimately determine your capacity to produce a post-work income through real estate.
- Be selective with how you use your growing asset base like a farmer is selective with his harvest.
As an investor, you need to keep an eye on your growing portfolio and know when to take out some profit.
In the asset-building phase of your investment journey, you should only take out profit to reinvest for accelerated returns, just as a farmer re-sows the best seed to make sure each new crop is more bountiful than the last.
- Each new cycle should be seen as a chance to grow your wealth.
Like the farmer, you don’t want to consume the fruits of your investment labors, but continue to look for new buying opportunities that will enable you to use that good quality profit to acquire even more good investment-grade properties.
- Work your investment portfolio, the way a farmer works his land.
For property investors, the lesson is to be an active participant in the growth and sustainability of your portfolio.
This means taking care of your investments, regularly reviewing their performance and protecting them with necessary asset protection structures, cash flow buffers, and insurances.
It also means keeping a close eye on the performance of your properties and if necessary, doing a bit of ‘weeding’ if you have underperforming assets that are threatening your harvest.
What if rate cuts don’t work but only push up property values with Dr. Andrew Wilson
- It seems the RBA is aware that their low-interest rate tactic may backfire.
- In the minutes of their October meeting, RBA board members stated that “policy stimulus might be less effective than past experience suggests.”
- The IMF’s World Economic Outlook cut its growth forecast for the Australian economy from 2.1 percent to 1.7 percent — a level below the government’s and the Reserve Bank’s forecasts of about 2.25 percent.
- In their minutes they noted that the Reserve Bank’s most recent forecasts suggested that unemployment and inflation rates over the following couple of years were “likely to be short of the Bank’s goals”.
- The RBA minutes justified their decision to cut rates in October. They suggested that holding back rate cuts in anticipation of a negative shock was not the best policy. Instead, they felt it is better to cut rates, strengthen the economy immediately so that the economy would be better placed to absorb a negative shock.
- The Board minutes leave little doubt that another cut is expected.
We’re in for some interesting times ahead.
Links and Resources:
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Some of our favourite quotes from the show:
“To find success in growing your own crop of high growth assets, you must change your focus from consumption to production.” – Michael Yardney
“Your thoughts lead to your feelings, your feelings lead to your actions, your actions lead to your results.” – Michael Yardney
“Just because spring arrives doesn’t mean things are going to look good in autumn.” – Michael Yardney
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