And then we would be able to pick the bottom of a slump, and buy/invest when things are really cheap.
Great theory isn’t it ? Trouble is we can’t do it with any degree of accuracy.
So we should sit up and listen. Maybe there are some things we can do.
Very often people have too much invested in a single sector, so the obvious thing to do when prices seem good is to reduce our overweighted holdings.
Other sectors may be stagnant – not cheap - but not going anywhere much either.
And some may be in a “sunset” phase – likely to fall in future.
So first of all we can try to identify :
· what we might sell
· what we might hold till it rises
· what might never rise
· what might keep falling
If you have several Auckland properties, you might reduce your holdings by selling a house or two while prices are so high – insane even.
If you have a big Auckland property and are thinking of downsizing into retirement , maybe now is a good time to do so, but beware – don’t sell until you know what your next home will cost.
Reduce NZ shares
NZ shares are up 65% over the past 3 years, and nothing rises that fast for too long. If you have more than 10% of your total assets in NZ shares, it is probably a good time to reduce down to 10%.
Dairy farms – missed
Farmers are getting $8.60 kg. this year, but are forecast to only get $5.20 next year.
Might as well forget selling the farm for a good price for a while, and wait for the next upward cycle.
Provincial NZ property
Property in most provincial towns in NZ has been flat, and probably will stay flat if the the economy slows, so is probably a hold.
Reduce your property holdings if you have serious debt, as interest and mortgage rates are likely to creep up.
There are quiet a few sunset industries about , due to the internet and / or the big chains such as the Warehouse, Bunnings, Mitre 10, Warehouse Stationery and more.
If the economy slows, owners of some sunset businesses will have to close – if that is you, plan ahead for the best exit you can.
If you own commercial buildings that house small retail and office buildings, sell the building if you can, or ensure you can afford more vacancies – especially in smaller towns, where vacant spaces are all too common.
Offshore shares - comment
As far as one can see, the world is still recovering from the GFC and so probably has quite a way to go to a full recovery.
That should leave room for some growth in offshore shares, but you must take into account the fact that they have risen a lot already since the GFC.
Cash & Currencies
Cash never hurts you if things are slowing – and if you plan to travel , hold some offshore cash in AUD$, USD$, £ sterling, and Euros.
Quality bonds are always a safe haven and will serve you well , especially if you buy when interest rates are in the upper half of their range. Note I said quality – junk bonds just don’t pay.
Diversification or lose
Please don’t delude yourself – it is unlikely that you can pick the best sector to be in consistently enough to win out.
The experts predict NZ has had its boom.
Sell or reduce holdings in expensive assets.
Hold stagnant assets if they look sound, provided you don’t have excessive debt.
Reduce excessive debt sooner rather than later.
If you own a “sunset “ business or commercial property, think about when and how you will exit, and at what price.
Keep cash in hand unless investments are really cheap.
You can (partially al least) balance fear and greed by using an adviser.
Make haste slowly.
Half now - half later - is a great strategy (whether buying or selling).
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media and on line.
His second book “The Great NZ Work, Money & Retirement Puzzle” is now available.
You can buy it on line at www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge.