I was reading this book that talked about time in the market v timing the market. Basically, it said that if you buy regularly (as you would when you contribute x% of your salary a year to your super) for these 4 types of markets, your results would be something like:
1) Falling market 500
2) Fall then rise 1600
3) Rise then fall 1300
4) Rising market 2000
I don't remember the numbers, but the point is that excluding the constantly rising and constantly falling market (unlikely in the long term), it's better to dollar cost average into a market that falls first and then rises, because you get shares at cheaper prices which then catch the bigger upswing. In property we often observe years of low or no growth followed by a boom.
How does this relate to property? My personal assumptions are that the market is cyclical, but has long term positive growth. I also assume that I'll buy regularly. e.g. you buy a property for $300k today, next year after a 5% pay rise you buy one for $315k, and so on. Since long term property prices have risen above wages, it means you buy progressively further and further out (I assume everything has the same long term growth rate).
The point? New investors often ask 'what if the market falls after I buy'? The above theory would say that's a GOOD thing, because you can then buy into the market more cheaply. So you would be accumulating more property during the 'dead' years and then you would get the above average growth.
The 'time in the market' vs 'timing the market' is more relevant when you only ever buy ONCE. If you're the type who goes for 'one PPOR, one IP for retirement' then timing is more important. If you plan on having multiple properties accumulated over years, when you start in the cycle doesn't matter.
There are of course provisos here. I assume that in a dead market you keep buying using savings from wages, which is a big part of my strategy. With a rising market you can refinance.
So the idea is to buy as early as you can. Buy cheap and buy often.
Alex
1) Falling market 500
2) Fall then rise 1600
3) Rise then fall 1300
4) Rising market 2000
I don't remember the numbers, but the point is that excluding the constantly rising and constantly falling market (unlikely in the long term), it's better to dollar cost average into a market that falls first and then rises, because you get shares at cheaper prices which then catch the bigger upswing. In property we often observe years of low or no growth followed by a boom.
How does this relate to property? My personal assumptions are that the market is cyclical, but has long term positive growth. I also assume that I'll buy regularly. e.g. you buy a property for $300k today, next year after a 5% pay rise you buy one for $315k, and so on. Since long term property prices have risen above wages, it means you buy progressively further and further out (I assume everything has the same long term growth rate).
The point? New investors often ask 'what if the market falls after I buy'? The above theory would say that's a GOOD thing, because you can then buy into the market more cheaply. So you would be accumulating more property during the 'dead' years and then you would get the above average growth.
The 'time in the market' vs 'timing the market' is more relevant when you only ever buy ONCE. If you're the type who goes for 'one PPOR, one IP for retirement' then timing is more important. If you plan on having multiple properties accumulated over years, when you start in the cycle doesn't matter.
There are of course provisos here. I assume that in a dead market you keep buying using savings from wages, which is a big part of my strategy. With a rising market you can refinance.
So the idea is to buy as early as you can. Buy cheap and buy often.
Alex
