What a New Year's Day it has been on SS. I have had some interesting discussions reviewing last year's investment performance, but it is clear that I am not on the same wavelength as many here and I think I know why: It is the perception of risk and the tolerance of it.
Reasonably, I have a lower tolerance of risk because I have no recovery time left. If I stuff up, I'm out of the game. There is no get out of jail free card for me. Yet I can tolerate the volatility and gyrations of the share market better than most here, to the extent that I deliberately seek out high risk/high return stocks. Why is this?
That's where perception comes in. I have observed the political and economic climate for fourty years, since I first ran a service station on my own account, and the only thing I'm sure of is change. My experience is that property does not double every ten years even if it does so on average. You can go broke waiting if you are too heavily committed. If this happens once in every four decades I perceive a 1:4 risk that the strategy of high leverage on low returning property will fail me critically. That is too high for me so I will never go down that track with you. That is the death of a thousand cuts.
Apart from the risk of flatlining property prices there is also the risk of more dramatic events. The problems facing the world financial markets in general, and the US in particular, have been well canvased here so I will not cover that old ground, but what are the odds something bad will happen? If they are 1:10 that it will happen this year, that is too high for me. I'm a bit of a D&Ger but I cannot say with any certainty that the sky will fall at all and I certainly can't say it will happen next year, but I'm aware of the risks and try not to put myself in (financial) harm's way.
If it were to happen there is liquidity risk in property: Just when it becomes obvious that you must exit your positions, it has also dawned on others so a 20% drop in headline price can easily happen, but that is a total wipe out for anyone geared to 80% LVR. Let's not even think about the more aggressive souls.
Why leave yourself vulnerable to a risk with only a 1:10 chance? It isn't necessary. A little patience in your time-line for retirement would help by allowing more conservative LVRs. More careful targeting and timing will get you back on target.
I do understand the attraction of property when starting out. You can join the game with limited capital and time while you are still working for a living and raising a family, but it isn't the only game nor, IMHO, the best when you're nearing the end of the journey.
This post is starting to ramble a bit and I have to work tomorrow so I'll post what I have without careful checking or suggesting ways to reduce perceived risk (not the purpose of the post anyway) so please don't sweat the details, just let me know if you agree or disagree with the broad thrust of it.
Reasonably, I have a lower tolerance of risk because I have no recovery time left. If I stuff up, I'm out of the game. There is no get out of jail free card for me. Yet I can tolerate the volatility and gyrations of the share market better than most here, to the extent that I deliberately seek out high risk/high return stocks. Why is this?
That's where perception comes in. I have observed the political and economic climate for fourty years, since I first ran a service station on my own account, and the only thing I'm sure of is change. My experience is that property does not double every ten years even if it does so on average. You can go broke waiting if you are too heavily committed. If this happens once in every four decades I perceive a 1:4 risk that the strategy of high leverage on low returning property will fail me critically. That is too high for me so I will never go down that track with you. That is the death of a thousand cuts.
Apart from the risk of flatlining property prices there is also the risk of more dramatic events. The problems facing the world financial markets in general, and the US in particular, have been well canvased here so I will not cover that old ground, but what are the odds something bad will happen? If they are 1:10 that it will happen this year, that is too high for me. I'm a bit of a D&Ger but I cannot say with any certainty that the sky will fall at all and I certainly can't say it will happen next year, but I'm aware of the risks and try not to put myself in (financial) harm's way.
If it were to happen there is liquidity risk in property: Just when it becomes obvious that you must exit your positions, it has also dawned on others so a 20% drop in headline price can easily happen, but that is a total wipe out for anyone geared to 80% LVR. Let's not even think about the more aggressive souls.
Why leave yourself vulnerable to a risk with only a 1:10 chance? It isn't necessary. A little patience in your time-line for retirement would help by allowing more conservative LVRs. More careful targeting and timing will get you back on target.
I do understand the attraction of property when starting out. You can join the game with limited capital and time while you are still working for a living and raising a family, but it isn't the only game nor, IMHO, the best when you're nearing the end of the journey.
This post is starting to ramble a bit and I have to work tomorrow so I'll post what I have without careful checking or suggesting ways to reduce perceived risk (not the purpose of the post anyway) so please don't sweat the details, just let me know if you agree or disagree with the broad thrust of it.
) and we feel confident that we could start over. And if there's been a "crash", then there'll be some good bargains out there!
