Conversely sometimes it seems so obvious .................
But that is right now, what about next week ? Yes the high NZ$ did seem obvious, but who would be brave enough to take a big position. Professional currency traders often lose big money, so it is not that easy.
Picking the top of a boom - who does it affect ?
People with businesses or farms to sell, or who are thinking of selling
Business owners and farmers
People, businesses, and farmers who have lots of debt
People who own more than one house, or who have an expensive house
People who have most of their money in one big asset
People who own a lot of shares
People who own a lot of bonds
That’s a lot of people
A falling NZ$ dollar may attract more tourists from offshore, so not everyone will hurt if NZ has a sharp economic slowdown. But if it is a global slowdown, tourism will hurt too.
· When the price of an asset rises very quickly
· When the masses are getting all excited about something “hot” and all piling in.
· When the masses are bragging about big gains, and are buying bigger houses, new cars, beach properties, farm run offs, and lots of shares
· Sometimes the economists are right
· House price at insane levels
· If interest rates are rising and getting quite high, it will usually be the RBNZ trying to slow an overheating economy down
· If our main export prices fall a lot, beware
· But don’t place much value on the TV news, look for more in depth information
· If you have most of your money in one big asset, free up some time to think – a lot
· Average your way out of any big holdings – sell some now and some later, since you can’t pick the exact top
· Increase your cash holdings to reduce your risks
· And if you have cash, you will be able to go out buying when things are cheap again
· Do the opposite of the masses – if they are buying, start selling (& vice versa)
· Diversify widely
· If you will soon need income from your assets, do a major review - now
· Always have some investments that can quickly be turned into cash (e.g. bonds & shares)
· Never have all your assets in NZ
· Learn from your mistakes and history e.g. what would have worked in 2007 ?
· Always rebalance your shares - paper profits come and go
· Only ever buy high quality bonds - junk bonds are just that - junk
· Learn and understand diversification
· Learn about hedging into the NZ$ , and what it means
· If you are retired and are going to spend a lot of time offshore, put more money offshore
· Don’t over-react – replace fear and/or greed with a rational approach
· Make a plan and carry it out - “softly softly catchee monkey”
Next week – can we pick the bottom of a bust, and go out buying good stuff cheaply ?
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.